The central bank on Wednesday downplayed any negative impact of the United Nations (UN) ruling in the West Philippine Sea dispute to financial markets in the country.
Debt watcher Moody’s Investors Service shared the same view, saying that the ruling has no immediate sovereign credit implications for the Philippines and China.
On Tuesday, the UN Permanent Court of Arbitration in The Hague, ruled unanimously in favor of the Philippines in a dispute over China’s claims to most of the West Philippines Sea. It invalidated the “nine-dash line” used by China to claim 90 percent of the West Philippine Sea including the Spratly Islands and fishing areas within the Philippines Exclusive Economic Zone.
“We have not actually seen an impact so far. What the market will be looking at is how is China going to react to the decision,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters on the sidelines of 13th Awards Ceremony and Appreciation Lunch for BSP Stakeholders held on Wednesday.
At this time, Tetangco noted that the market is reacting basically to developments elsewhere, basically from the United States and Japan.
“Looking at the behavior of the markets today the conditions here continue to be more affected by developments in the US and Japan,” he said.
For instance, the BSP chief said in the case of the exchange rate, the peso opened stronger on Wednesday compared with the previous trading day “because of an improvement in sentiment given the announced additional stimulus that would be provided by the Japanese government.”
“And this is being interpreted as being supported of growth,” he added.
In addition, Tetangco noted that the Fed is now seen as not really in a hurry to tighten and may actually increase interest rates toward the latter part of the year once.
“Remember at the beginning of the year the expectations was four increases. Even some Fed officials are saying there will only be one. That has also affected, in fact, improved the sentiment that led to some strengthening of the peso,” he said.
On Wednesday, the peso closed at a stronger level against the dollar at P47.21 to $1.
The local currency opened at P47.22 to $1 at the Philippine Dealing System (PDS) before trading between P47.17 and P47.32.
The unit gained 11 centavos from the P47.32 close on Tuesday. Total volume transacted on the PDS fell to $598 million from $711.2 million the previous day.
No credit implications
Moody’s said the United Nations’ Permanent Court of Arbitration (PCA) ruling on claims to maritime rights over much of the South China Sea has no immediate sovereign credit implications for the Philippines or China, although it does highlight long-simmering territorial and maritime disputes in Asia.
Marie Diron, senior vice president at Moody’s, said geopolitical tensions could affect the two countries’ credit profiles if they are likely to have a negative economic impact, entail significant fiscal costs, or if they hamper policymaking.
“Per our sovereign methodology, we assess geopolitical strains as posing a very low risk of weighing on sovereign credit trends in China or the Philippines,” she said.
“The PCA ruling does not change this assessment because we do not expect the ruling to substantially affect either country’s economy, budget or policy effectiveness,” she added.
The Moody’s official added that this expectation is underpinned by the credit rater’s baseline assumption that there may be actions or statements that stoke strains temporarily but these will not lead to a marked and protracted escalation of tensions.
“Nonetheless, the dispute does highlight emerging geopolitical issues for the two countries and for the region as a whole,” Diron concluded.