PH to withstand impact of sudden capital outflow
AMID the volatility in financial markets, a top economic manager has reiterated that local monetary and fiscal authorities had enough ammunition to take on various challenges that threaten to slow down the country’s economic growth momentum.
Amando M. Tetangco Jr., governor of the Bangko Sentral ng Pilipinas (BSP), admitted that due to recent natural calamities and external factors, the government would have to work harder this year to sustain the economy’s expansion.
“The BSP recognizes potential risks that could disrupt the economic momentum (of the Philippines),” Tetangco said yesterday.
“The country, however, has enough ammunition to withstand the adverse impact of a sudden capital flows reversal away from emerging market economies,” he said.
On the local front, he said the country experienced a “trilogy of unfortunate events” brought by both man-made and natural calamities last year. These were the armed conflict in Zamboanga, the earthquake that hit Bohol and Cebu, and super typhoon “Yolanda.”
Fortunately, Tetangco said, the impact of these natural calamities on the overall economy would likely be less than anticipated.
The bigger challenge for the country is the repatriation of foreign money from emerging markets as investors take a more favorable view on advanced economies, which are starting to stage a recovery from the 2008 global financial crisis.
The exit of foreign investors from the Philippines and other emerging markets late last year was prompted by hints of the US Federal Reserve’s plan to start scaling back its monetary stimulus, which started in late 2009.
The Fed’s so-called “taper” starts with a $10-billion reduction in its asset purchases this month to allow the US economy to stand on its own feet. Earlier this week, the peso breached the 45-to-$1 level for the first time since 2010 following the release of positive American economic data, which sent the US dollar rallying against Asian currencies.
“The BSP can deploy a menu of policy actions similar to those adopted during the recent 2008-2009 global financial crisis such as providing liquidity through the BSP’s standing dollar facilities, preventing excessive volatility in the foreign exchange market,” Tetangco said.
These minimize the risk of a shortage of dollars that the government and businesses need to pay for foreign exchange-denominated obligations, without the central bank having to resort to raising interest rates to attract profit-hungry foreign investors.
The BSP’s benchmark overnight borrowing rate currently stands at a record low 3.5 percent.
