Bangko Sentral optimistic Philippines can weather global turmoil

The Bangko Sentral ng Pilipinas said there was ample liquidity in the domestic economy that could help the country weather the ill-effects of a global turmoil resulting from the debt crisis in Europe.

The Aquino administration has slashed its economic growth target for 2011 and 2012 to take into account the adverse impact of the crisis in the developed countries.

The BSP said, however, that the revised target still reflected the resiliency of the Philippines as industrialized countries in the West were struggling with much slower growth rates. The BSP said the new target was easily attainable given the sufficient amount of funds available in the banking system as well as other favorable indicators.

“There is sufficient liquidity in the system, the exchange rate is stable and the inflation outlook continues to be manageable,” BSP Governor Amando Tetangco Jr. told reporters.

The banking sector has about P5 trillion in deposits and about P1.5 trillion of the amount is simply kept by banks in the special deposit account (SDA) facility of the BSP.

Tetangco said the available liquidity would allow banks to lend more, thereby boost consumption by individuals and investments by enterprises.

He said liquidity and the national government’s move to fast-track public spending in the second half would make the lower growth target realizable.

BSP Deputy Governor Diwa Guinigundo said the new growth target was not expected to dampen sentiment of investors on the country.

“I don’t think there will be a material impact on capital flows. The revised growth rate continues to reflect the resiliency of the economy notwithstanding the continuing global weakness and financial market volatilities,” Guinigundo said.

The central bank will review its rates policy next week and will include Indonesia’s surprise Tuesday rate cut in the discussions. Before Indonesia’s rate cut, analysts widely expected the central bank to keep its policy rate on hold at 4.5 percent, the highest in more than two years, for the rest of 2011.

“Economic recovery in any jurisdiction at this time of heightened market uncertainty is more challenging,” Tetangco said in an e-mail to Reuters. “There is, however, sufficient liquidity in our domestic market, the exchange rate is broadly competitive, we have a well-functioning banking system. The NG [national government] also has fiscal space to provide stimulus as necessary.”

“The BSP has enough policy flexibility—given the manageable inflation outlook—to respond to changes in the external environment. The BSP will ensure that our policy stance remains supportive of economic growth,” he said.

Guinigundo told Reuters on the sidelines of a Senate budget hearing that an easier monetary policy was not the only way to support growth, with such a move possibly complicating policy.

“Interest rates are at historic lows and liquidity is more than adequate, so further easing of monetary policy may have to be reviewed very, very carefully,” he said. “Otherwise, there is that possibility of contributing to excessive liquidity leading to possible asset bubble that would generate more problems.” With a report from Reuters