Markets seen to turn volatile

Bangko Sentral Governor Amando Tetangco Jr. FILE PHOTO

Domestic financial markets are expected to be volatile in the coming days as investors become more anxious over the US “fiscal cliff,” said Amando Tetangco Jr., Bangko Sentral ng Pilipinas governor.

But the BSP chief stressed that the volatility would be short-lived, and financial markets in the Philippines would eventually focus on the country’s favorable fundamentals.

“There would be market volatility largely because of the fiscal cliff. Markets will look closely at how the US government will be able to come up with a solution,” Tetangco told reporters in a yearend briefing last week.

“But the volatility will likely be quick. Personally, I think [US officials] will come up with something [to] address the fiscal problem.”

Excluding the problems abroad, investors are expected to turn their attention to the Philippines and its favorable macroeconomic situation. Tetangco said the domestic economy, which enjoyed robust growth and benign inflation in 2012, would likely stay in a “sweet spot” through 2013.

According to the BSP, growth of the country’s gross domestic product next year is expected to range between 6 and 7 percent, while inflation may fall below 4 percent.

But the US fiscal cliff is seen to have a modest impact on domestic financial markets given the significance of the United States to emerging markets like the Philippines.

The United States is a top market for Philippine exports and is home to many overseas Filipino workers. A decline in income there will affect the Philippines, particularly its financial markets.

The term “fiscal cliff” refers to a point which, when reached, could drive the US economy to another recession. US lawmakers need to enact measures to reverse or temper the adverse effects of tax hikes and spending cuts.

The tax increases, which would reduce take-home pays of Americans, and the spending cuts are expected to pull down the US economy’s growth by about 4 percent.

But Tetangco said that sentiment in the domestic financial markets would stabilize immediately after the knee-jerk reactions over the US fiscal problem.