Bangko Sentral on guard against economic headwinds from abroad

THE BANGKO Sentral ng Pilipinas (BSP) is ready to deploy any of its policy measures should economic growth bog down as a result of headwinds from overseas.

BSP Governor Amando M. Tetangco Jr. said volatility in financial markets would be the initial concern for policymakers, although risks to the boarder economy are real.

“Our macro fundamentals remain sound, inflation expectations are anchored, domestic aggregate demand continues to be firm,” Tetangco said, citing the country’s several buffers that would insulate the economy from overseas stresses.

The banking system also remains profitable and well-capitalized and lenders’ books are cleaner than at any point in history. Foreign exchange reserves also remain ample based on international best practices.

His assurances come amid recent developments in markets in China, Europe and the US that may destabilize the Philippine economy.

China’s economy has slowed for the last two years, and Chinese equities entered bear market territory earlier this month as valuations dropped more than 20 percent. In Europe, Greece has moved closer to exiting the euro zone after defaulting on loans twice in the past two weeks. Meanwhile, the US Federal Reserve said last week that interest rates would be hiked later this year, with most signs pointing to September.

Tetangco said the BSP had “the policy space to stem market volatility from portfolio rebalancing” due to the US Fed’s looming rate hikes, European Union discussions and the Chinese stock market volatility.

“Nevertheless, should our trade be adversely affected, especially if growth in China slows significantly more than market expectations, we also have room to support growth and manage inflation, given our policy rates are still relatively higher than zero,” he said.

The BSP’s overnight borrowing and lending rates currently stand at 4 and 6 percent, respectively.

Tetangco stressed that the Philippine economy has proven its ability to withstand international crises in the past five years. Most recent of these was the so-called “taper tantrum,” referring to financial markets’ reaction to initial hints by the US Fed of policy tightening. Paolo G. Montecillo