Echoing the earlier pronouncements of the central bank, the Department of Finance (DOF) believes that the Philippines can ride out the current volatility in financial markets as the US Federal Reserve moves closer to adopting a normal policy stance.
The Philippine stock market is strong, ranking fourth among 11 Asian bourses, and the country’s foreign reserves remain at healthy levels.
“The country’s strong reserve position, its healthy banking system and profitable corporates should help the country avoid the deleterious effects of financial volatility from the Fed normalization,” DOF Undersecretary Gil Beltran said in an economic bulletin released on Sunday.
Beltran emphasized that economic reforms should continue to be implemented to boost growth and the country’s fundamentals should continue to be protected to sustain investor confidence.
The DOF official noted the benchmark PSEi soared 11.7 percent in the year-to-date, almost thrice the 4.4 percent average of 11 countries, after Indonesia (19.12 percent), Thailand (16.57 percent) and India (12.09 percent).
The PSEi also performed better compared to China (-13.86 percent), Japan (-13.03 percent), Malaysia (-1.74 percent), Singapore (-0.89 percent), Vietnam (P4.28 percent), South Korea (4.92 percent), and Hong Kong (9.24 percent), he said.
The Bangko Sentral ng Pilipinas’ (BSP) gross intentional reserves stood at P85.9 billion as of August this year – enough to cover 10.5 months worth of imports of goods as well as payments of services and income, he added.
“The BSP’s current reserves level also stand very comfortable than other Asian central banks,” said Beltran, noting that Indonesia’s buffer for the economy can only cover 3.9 months’ worth of import duties, Malaysia has 5.4 months, while Singapore’s is 6.3 months.
South Korea has a buffer equivalent to 6.1 months, Taiwan has 1.5 months, India has 6.9 months, and Vietnam has 2.3 months, he added.
The BSP can take the peso depreciation as an opportunity to boost its current reserves while sustaining the competitiveness of exports, Beltran noted.
“As of September 22, the peso weakened to P47.85 against the US dollar from P47.15 at end-December last year owing to the normalization of interest rates in the US and the economic slowdown in China,” he said.
The peso has weakened by 1.47 percent so far this year, trailing the 5.2 percent gain of Indonesia’s rupiah, the 3.5 percent of Malaysia’s ringgit, as well as the registered strengths of 3.92 percent of the Thai baht, 4.78 percent for the Singapore dollar, 6.11 percent for Korea’s won, and 0.85 percent for the Vietnamese dong.
Asian currencies gained by 2.8 percent on average against the US dollar, with five of 13 countries showing depreciation rates ranging from 0.1 percent (Hong Kong) to 9.9 percent (China).
“The Philippine peso depreciated by only 1.5 percent year-to-date but showed the biggest depreciation month-to-date as the positive impact of the May election on the peso subsided,” Beltran said.
“The rest of Asia lost $205 billion to support their currencies; the Philippines gained $5.1 billion,” he added.
Over the weekend, the BSP said market volatility will continue to plague the Philippines, weakening the peso and compelling fund managers to repatriate gains from the stock market, until the Federal Reserve decides to raise interest rates in the US.
In the face of the market play on US interest rates, it is up to investors how they would judge the Philippine economy and its macro economic fundamentals, it said. In light of all this, monetary authorities are assuming that the market is rational and can digest both positive and negative news and in the end judge whether going into the emerging markets, including the Philippines, is good, the BSP said.