PH: Touted Fed rate hikes won’t ruffle Asean+3 growth

YOKOHAMA, Japan—The Asean, China, Japan and South Korea grouping, called Asean+3, could withstand external shocks from potential US Federal Reserve rate hikes seen spilling over until next year given robust foreign exchange reserves, Philippine officials said.

“The Asean+3 community has sufficient buffers should the US Fed decide to hike two or three more times, and for 2018 people are saying there could be additional three or four interest rate hikes,” Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo told a press conference after the Asean+3 finance ministers and central bank governors’ meeting here late Friday.

The US Federal Reserve raised the overnight rate by 25 basis points in March. Two more actions are expected this year, one in June and one in December, to bring up the rate to 1.4 percent by yearend.

“Of course, the assumption there is that the US economy has really turned the corner and become really more robust. What are the buffers for the Asean+3? I think we have sufficient foreign exchange reserves, that’s one. Second, the growth dynamics in the Asean+3 is very healthy, it is very encouraging and very robust,” Guinigundo said. Trade was also strong within the Asean community, he added.

For his part, Finance Secretary Carlos G. Dominguez III said he believed that “our economies in the Asean+3 had experienced very robust financials, certainly since the Asian crisis 20 years ago.”

“We learned a lot of lessons that improved corporate governance and supervision. I believe that we are better prepared than any other time for external events such as the Fed interest rate increases. But, of course, [we don’t know] when it will happen and by how much. So those are the things that we have to watch very carefully. And we have to double up on our supervision and our watchful waiting so we can handle those external events,” Dominguez said.

Following their meeting, Asean+3 finance ministers and central bank governors adopted the “Yokohama Vision” aimed at making the 13 countries more resilient and more integrated.

The Yokohama Vision would pave the way for the promotion of local currency use to support Asean financial integration, a joint statement read.

Among the initiatives in the Yokohama vision include “diversifying the local currency funding options available across the region by building up financial markets, in view of expected increase in local currency finding needs with the progress of the Asean financial integration.”

The group also aimed to “support the deepening of local currency bond markets in the region, including through effective use of the Credit Guarantee and Investment Facility (CGIF) with expanded guarantee capacity.”