PH ‘insulated’ from US gov’t shutdown

The Philippine economy has enough buffers to mitigate any potential impact of Tuesday’s US government shutdown, but the central bank emphasized it was ready to step in to counter volatility in financial markets caused by risk-averse foreign investors.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the key issue market players were watching would be the speed and form at which the deadlock in the US Congress would be resolved.

“The immediate impact would be on global and domestic financial market volatility, as investors move away from risky assets to traditional safe havens,” Tetangco said in a text message to reporters.

The US government was forced to shut down for the first time in nearly 18 years this week, following the failure of its divided Congress to pass legislation that would have extended funding to key federal services.

The effect that risk aversion among foreign investors can have on Philippine asset prices has been evident over the past few months, following the announcement of the normalization of monetary policies in the US.

Despite the uncertainty in the world’s largest economy, local financial markets emerged relatively unscathed on Tuesday. The peso closed stronger at 43.325:$1 on Tuesday from 43.54:$1 the day before. The main Philippine Stock Exchange Index (PSEi), meanwhile, ended the day flat, rising by 0.10 percent.

To respond to any potential volatility in financial markets in the days to come, BSP’s Tetangco said it would maintain its policy of intervening in the foreign exchange markets to smoothen out any fluctuations in the peso’s value, which could have pass-on effects on consumer prices.

“The domestic economy has sources of resilience owing to the buffers we have built. We will continue to watch how the developments in the US will pan out,” Tetangco said.

The BSP has said that the steady flow of dollars from overseas Filipino workers’ remittances and the business process outsourcing sector, among other sources, would protect the economy from any potential shortage of foreign exchange caused by the repatriation of foreign capital.