Tetangco: PH economy ready to take on 2017
Despite heightened global uncertainties seen this year, the Philippines’ sound macro fundamentals would shield the domestic economy as the Bangko Sentral ng Pilipinas continues to implement additional reforms to further strengthen the banking system, Governor Amando M. Tetangco Jr. said.
In an e-mail to the Inquirer, Tetangco believes 2017 would be a trying year.
“There are many moving parts in the global environment that are subject to great uncertainty and thus really difficult to predict. Political developments in many countries may spell significant shifts in policies that could have enormous effects on the world economy. Of late, global markets have tended to react to every piece of news more intensely, resulting in overshooting in certain cases. This kind of environment makes policy formulation greatly challenging and policy transmission more complicated.”
This year, global markets would have to brace for US President-elect Donald Trump’s assumption into office, the expected three more US Federal Reserve rate hikes, and further developments with regard to the United Kingdom’s imminent “Brexit” from the European Union.
“Over the years, the BSP has endeavored to work closely with market participants, carefully communicating our monetary and banking policy intent and consulting them on reforms before these are finalized and implemented. Our goal in following this strategy has been to provide the market within an anchor especially during unsettling times when there is more than the usual ‘noise.’ This strategy has served us well and there is no need to veer away from this, even in 2017,” Tetangco said.
He said the BSP would have to be sharper and on the lookout for potential issues this year. “[There] is a need to continue to improve our market surveillance and further sharpen our own early warning and forecasting models, as well as refine and expand our stress tests.”
Tetangco believes inflation would remain under control this year.
“It is projected to follow a path consistent with our target range of 2-4 percent over 2017-18. While there are upside risks to the forecast, in light of rate hike petitions and the potential inflationary impact of increased government spending, these are seen to be manageable with average inflation projected to be near the middle of the target range in the next two years.”
The peso, meanwhile, would continue to be sensitive to political and external issues, he added. The peso hit eight-year low levels in 2016 as the US dollar—considered a safe haven by investors amid global uncertainty—strengthened.
“With the expected tightening of global financing conditions, emerging market currencies may experience downward pressure especially with the US Fed seen to continue its monetary policy normalization in 2017. The BSP will keep its policy of allowing the peso exchange rate to be determined essentially by supply and demand. What we don’t want to see are sharp fluctuations in the rate,” the BSP chief said.
Tetangco said there was no need for worry given the country’s headroom when it comes to tweaking its monetary and fiscal policies.
In 2017, Tetangco plans to implement further reforms in the banking system, such as: Continuing policy reforms and advocacies to broaden access to and improve the affordability of financial services, enhance the quality and variety of financial products, and promote competitiveness and efficiency in the financial system; sustaining policy reforms to further strengthen good corporate governance and risk governance in banks; as well as implementing enhanced oversight of non-bank BSP-supervised financial institutions to enhance financial system integrity and consumer protection, and to contain shadow banking.
Tetangco said reforms in the pipeline also included promoting the accelerated development of the domestic capital market and the modernization of the payments system.
