The year 2012 has been described by economic analysts as a year of transition for the global economy, according to Bangko Sentral ng Pilipinas (BSP) Gov. Amando Tetangco Jr.

He said on Thursday during the Rotary Club of Manila’s First Membership Meeting for 2013 that, “the year began with economic policy makers in the advanced economies wrapped with uncertainty about whether their politicians would be able to deliver the required votes on economic reforms essential for the resolution of the European sovereign debt crisis, and the aversion of the US fiscal cliff. Markets were jittery and credit spreads were high.”

In the meantime, the policy makers of emerging markets, while doing relatively better, have become increasingly concerned with “spillover” to their economies, given the relative importance of Europe and the US as trading partners to these economies, he added.

Crisis prevention and mitigation had thus become the mantra of policy makers across the globe.
In a major way, central bankers stepped in while the markets waited for the political resolution to the twin issues.  

“Central bankers became the catalysts for preventing another global financial crisis from erupting. Among others, the ECB’s [European Central Bank] OMT [or Outright Monetary Transactions Program] and the Fed’s QE3 [or its third offering of Quantitative Easing] provided the financial markets with both the ‘actual’ liquidity and the ‘psychological’ calm that they needed to break their crisis mentality,” Tetangco noted.

He added that as of now, Europe seems to be getting closer to a resolution to its debt problems. Meanwhile, US economic growth appears to be gaining some traction, although it is still a work in progress.

According to the BSP governor, even as the medium-term implications are still unclear, the fact that the US fiscal cliff has been avoided provided support to the markets when they opened on Wednesday.

Tetangco added that, “in our own backyard and in response to these dual concerns, the BSP calibrated domestic monetary conditions by cutting our policy rates by a cumulative 100 basis points. This move reduced our borrowing rate from 4.5 percent to 3.5 percent.”

The BSP was able to reduce its policy rates by that much because the domestic inflation outlook continues to be manageable.  This easing of monetary policy encouraged banks to also reduce their lending rates, thereby supporting domestic investment and consumption.

Tetangco also noted that the Philippine banking system remained sound and stable in 2012, allowing it to effectively intermediate funds to productive uses even during times of global uncertainty.