The Philippine central bank has no plans to implement macroeconomic prudential measures at this time despite the likelihood of rising interest rates as a result of the US Federal Reserve’s decision to continue to taper its bond-buying program.
“We will have to continue to monitor the situation. At this point in time there are no plans,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said on the sidelines of the Financial Times-First Metro Investment Summit held on Monday.
Tetangco said that emerging market economies like the Philippines have been able to adjust to the impact of the US tapering, noting that volatilities in financial markets have already gone down since the announcement of the Fed move last year and the actual start of the tapering early this year.
“This would indicate that there’s some calm that is returning to the markets. I think this is at least in part because of what the market saw when the announcement was made and then the actual tapering started. In other words, we have more information now as to how markets will possibly react . . . So this has had a calming effect in the market,” he said.
The US Federal Reserve in April announced that it would continue cutting its monthly purchases of US Treasuries and mortgage-backed securities by a further $10 billion to $45 billion from an original $85 billion a month.
Tetangco also said that despite the tapering, emerging markets like the Philippines remain an asset class for investors.
“This seems to be supported by the argument of differentiation, the differentiation argument. Markets or economies with better fundamentals are likely to fare better. And markets with certain vulnerabilities are expected not to perform as well as markets with strong market fundamentals,” he said.
“And the Philippines belongs to the first group. We have strong macroeconomic fundamentals. That’s why you have seen some returns. Some capital returned to the countries they fled from,” he added.
Tetangco cited the improvements seen in the Philippine equities, bond and foreign exchange markets.
“Exchange rates have recovered, equities have also gone up and bond yields have started to somewhat go down. I think if there are no unexpected shocks, these could signal that we’ll most probably have a more manageable transition into more normal interest rates among the emerging economies,” he said. MAYVELIN U. CARABALLO