‘Building buffers vital to PH economy’


The central bank said it is keeping a close eye on risks from inflation pressures, market volatility, debt growth, and other factors that could threaten the strength of the Philippine economy, and that building buffers against these potential threats are vital in maintaining price, financial and economic stability.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told the Foreign Correspondents Association of the Philippines (FOCAP) Media Forum this week that the recent irregular shifts in global market behavior confirm the need for economies to insulate themselves from spillovers from these external volatilities.

“In the BSP, we have long subscribed to the idea that the best way to do this is to make the difficult and tough choices that would keep our own house in order. This reminds me of the classic children’s story about the Three Little Pigs,” Tetangco said.

“The moral of the story is simple: there is no substitute for conscientious preparation and hard work to guard ourselves against the Big Bad Wolf,” he added.

At present, the BSP governor said risks to price, financial and economic stability or the so-called Big Bad Wolves provides potential threats to the economy.

Inflation management a priority
“On top of our watchlist is any possible dislodgement of inflation expectations should strong second round effects (transport fare adjustments and power rate hikes) appear because of possible price pressures emanating from any short-term volatility in international oil prices on the back of geopolitical tensions,” he said.

In terms of risks to financial stability, Tetangco said BSP is mindful of market behavior in reaction to the monetary policy divergence across major advanced economies.

“There could be shifts from market complacency to panic. We are also closely monitoring household debt levels and corporate leverage and comparing these against bank lending standards,” he added.

On the risks to growth outlook, the BSP governor said the central bank monitors the growth developments in the country’s trading partners like the US, Japan, and China.

“In our domestic radar screen, we are monitoring possible spikes in commodity prices, delays in infrastructure and reconstruction projects, natural disasters as well as logistics bottlenecks,” Tetangco said.

Buffer strategies
“We cannot accurately predict when these Bad Wolves will attack . . . but we can build buffers. Let me focus on three strategies to keep our house in order: investing for the future, enhancing our policy tools, and putting the synergy principle in action,” he added.

One of the efforts in building these buffers is the government’s ramping up of infrastructure spending from 2.7 percent of the gross domestic product (GDP) in 2013 to 5 percent of GDP by 2016, the BSP governor said.

“The BSP, for its part, remains steadfast in maintaining price and financial stability to provide a macroeconomic environment supportive of investments. We will also continue to strengthen our regulatory framework for financial inclusion,” he added.

Tetangco also said the BSP will continue to proactively use its enhanced tool set to rein in domestic liquidity growth, preemptively arrest possible second-round effects of supply shocks, and anchor inflation expectations.

“The BSP also issued several regulatory reforms to further strengthen risk management practices in the banking system and enhance capital buffers against possible unforeseen shocks,” he said.

Finally, the BSP governor recognized the importance of the synergy principle in dealing with risks to price and financial stability, citing the central bank’s cooperation with external committees to strengthen and protect the country’s financial sector.


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