The Philippine economy has enough measure to ride out the recent financial market volatility, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said during the Second Philippine Financial Market Forum held in Makati City.
“The Philippines, in part through the efforts of the BSP, has sufficient cushions to ride out the recent bout of financial market volatility and take advantage of the opportunities that would present themselves, as the Fed-forecasted US economic growth indeed gains more solid traction,” Tetangco said.
Last week, the Philippine peso and the stock markets showed weakness after the Fed announced that it would likely slow its bond-buying program this year, as the United States economy is improving.
The BSP governor explained that Fed’s announcement has created some furor across financial markets around the globe, including the Philippine local financial markets.
“I have been asked what I thought about the recent market movements. I say, this market price action is a good thing. It is good because it helps put a brake somehow on the exuberance, and thereby help reduce some of the risks from bubble formation in certain asset classes that could lead to more financial market imbalances,” he said.
He added that the Philippine fundamentals are intact with the robust 7.8-percent first-quarter gross domestic product growth, which was supported by capital formation and public spending on infrastructure and is being buoyed by expenditures that would cement the growth to a sustainable level.
Tetangco also noted the year-to-date average inflation of 3 percent is at the lower end of the BSP’s inflation target range. This year, the BSP expects inflation to fall well within the government’s official target range of 3 percent to 5 percent.
He also said that the Philippine banking system is sound and growing steadily, creating a solid base for domestic retail funding.
In terms of the country’s external position, the BSP governor said that the gross international reserves were at over $82 billion, which has been supported by strong current account receipts that are not easily affected by changes in the global operating environment.
Furthermore, Tetangco said that in terms of liquidity, both in peso and dollar, remains ample.
He assured that the central bank is prepared to ensure that the financial system remains adequately lubricated during this period of global normalization.
“I know that was quite a mouthful . . . and from the perspective of treasury players, perhaps too broad and macro. I know that what the market really wants to hear from the BSP governor is this—where are the exchange and interest rates headed?” Tetangco said.
With this, the BSP governor said that the country’s fundamentals are solid, and the central bank have built up safeguards to ride out the volatilities.
“Therefore . . . at the moment . . . there is no need for us to deviate from our current policy stance,” he added.
Monetary policy, he said, will continue to be conducted in consideration of the benign inflation outlook and mindful of any financial stability pressures.