Finding the right amount of independence for Asia’s central banks

Authors: Adam Triggs and Jake Read, ANU

March 2019 saw Philippine President Rodrigo Duterte move his Budget Secretary, Benjamin Diokno, to govern the central bank. The press was quick to call this a politically motivated interference with the central bank’s independence. The markets were equally quick to shave 1 per cent off the Philippine Peso.

A logo of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) is seen at their headquarters in Manila, Philippines 28 April 2016 (Photo: Reuters/Romeo Ranoco).

Duterte’s decision follows a common trend — the independence of central banks is being challenged to differing degrees and for different reasons in many Asian countries. These include the Philippines, India, Thailand, Indonesia, Japan, Pakistan, Turkey, Russia, and further afield in the United States.

While weakening the independence of central banks can have dangerous long-term consequences, independence is not a universal panacea. There are times when less central bank independence makes sense. Asian governments must learn the difference.

President Duterte is no fan of high interest rates. Diokno, the new central bank governor, appears to agree. He has historically favoured a weaker currency, strong state spending and sees high inflation as ‘tolerable’ in a growing economy. Having leap-frogged three deputy governors in his appointment, he is tipped to loosen the Philippines’ monetary policy stance and is considering …continue reading