Financial market volatility seen to continue

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. INQUIRER FILE PHOTO

PHILIPPINE monetary officials expect financial markets to stay volatile in the coming weeks, but assured that the real economy remained healthy.

Governor Amando M. Tetangco Jr. of the Bangko Sentral ng Pilipinas (BSP) said both fiscal and monetary authorities had sufficient space to diffuse threats to the country’s economic stability.

This comes amid separate crises overseas, namely Greece’s default earlier this month and the entry of China into “bear” market territory following the precipitous decline of equity benchmarks.

“We may still see some further weakness in markets, but our macroeconomic fundamentals remain sound,” Tetangco said in a statement to reporters on Friday. “We have both monetary and fiscal space to help support the economy, should such be required.”

Apart from developments in China and Greece, the US Federal Reserve’s planned rate increase later this year continued to cast a shadow on Philippine prospects. US Fed Chair Janet Yellen late last week reiterated previous statements that the American central bank wanted to raise interest rates sometime this year.

Tetangco said the uncertainty caused by the stresses on three major fronts—namely Europe, China and the US—might prompt investors to seek safe havens for their cash. This means the exit of investments from emerging markets like the Philippines in favor of surer bets like US treasuries.

“What is important is to prevent an unraveling of market confidence,” Tetangco said, stressing that the Philippine economy would continue to perform well.

The International Monetary Fund (IMF) last week slashed its growth outlook for the Philippines after the country’s first-quarter slowdown, which was a result of slow state spending.

For 2015, the IMF said it expected Philippine gross domestic product (GDP) rising by 6.2 percent. This projection was lower than the IMF’s April forecast of a 6.7-percent expansion this year. Despite the downgrade, the Philippines is still expected to outperform its neighbors in Southeast Asia.

With healthy growth assured, Tetangco said the BSP’s own policy moves would depend mainly on the outlook on consumer price movements. In June, inflation declined to a record-low 1.2 percent, which was below the target range for the year of 2 to 4 percent.