ECONOMIC managers on Thursday expressed confidence that the Philippine economy would remain resilient despite the US Federal Reserve’s first interest rate increase in almost a decade.
“The Fed’s action brings an end to the liftoff uncertainty. The Fed’s statement should anchor confidence on the path of growth and inflation in the US. We may see the US yield curve flatten, which would be positive for emerging market economies that have exposures in the long end of the curve or are planning to tap this sector for funding. The regional currencies have already moved lower against the US dollar in recent weeks. This may continue, as would the outflows, but possibly not in significant magnitudes as in the past. The Fed promised gradual hikes. That may be further moderated as the US enters an election year. That said, on balance, the Fed action should be constructive for emerging market economies,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said in a text message to reporters.
On Thursday Manila time, the US Fed jacked up the benchmark federal funds rate by a quarter point to 0.25-0.50 percent.
“We are confident our economy is resilient from increased rates,” Finance Secretary Cesar V. Purisima said, adding that “[the Fed] liftoff will not change our financing plans.”
“The Philippines has been a current-account surplus country for 12 straight years and we expect this record to be maintained further by falling oil prices. We are on track to post a surplus of $14.2 billion this year, equivalent to 4.4 percent of GDP [gross domestic product]. Foreign reserves remain ample at $80.6 billion, able to cover 10.3 months of imports as of end-November 2015,” Purisima noted.
“I believe our borrowing costs will continue to narrow because of positive investor sentiment on the back of good fundamentals,” the finance chief said. “Moving forward, we will closely watch the pace of tightening alongside other developments in the volatile landscape of the global economy. We will remain opportunistic in our funding strategy, carefully monitoring market developments, including further signals for rate path clues.”
Purisima also said that he saw a silver lining to the US Fed action. “If a liftoff is any indication of a stronger US recovery, this bodes well for us: The US is one of our largest trading partners (second as of September 2015); source of visitors (second largest as of September 2015); and foreign direct investment (top source as of August 2015).”
“This development is good in the medium- to long-term. Obviously, there are winners and there are losers. The losers are those who have not minded their houses in good order over the last couple of years… Fortunately for us, we have learned our lesson quite well in the 1997 Asian financial crisis,” Economic Planning Secretary Arsenio M. Balisacan added.
Amid this development, international debt watcher Fitch Ratings said it kept the Philippines’ positive outlook on the country’s “BBB-“ rating.
“Fitch views the external finances of Philippines as a key credit strength. In Fitch’s view, steady current-account surpluses since 2002 have led to a large build-up in foreign exchange reserves and that makes the Philippines more resilient than many other emerging market economies to any shift in global investor sentiment, following the Fed rate hike,” said Mervyn Tang, Fitch Ratings associate director for sovereign ratings.