MANILA, Philippines — Central banks, including the Bangko Sentral ng Pilipinas (BSP), might go more dovish following the failure of two banks in the United States, according to Goldman Sachs.
The economic research team at the US-based financial services group said in a report that in the aftermath of the closure of Silicon Valley Bank and of Signature Bank, the US Federal Reserve could favor tighter bank lending conditions over monetary policy tightening or raising interest rates.
Goldman Sachs said this, in turn, would spill over into emerging markets such as the Philippines.
“For now, until there is more confidence that further bank runs have been avoided, the risks tilt towards less emerging market tightening/easier policy, but with an exceptionally high degree of uncertainty,” the company added.
Just a week ago before the two US banks collapsed and after the Philippine Statistics Authority reported a slight slowdown in headline inflation in the country, Goldman Sachs said the ongoing acceleration in core inflation remains concerning.
Core inflation, which excludes prices of goods and services that are considered volatile like food and energy, ratcheted up to a 23-year high of 7.8 percent in February from 7.4 percent in January.
Philippines’ inflation slowed to 8.6% in Feb
“We continue to expect the central bank to raise its policy rate by 50 basis points [to 6.5 percent] at the March [23] meeting,” Goldman Sachs said.
“However, there is a risk of a smaller 25 [basis point] hike following [February’s] lower-than-expected inflation print,” it added.
Finance Secretary Benjamin Diokno said the Philippine banking system was sound and well capitalized and was not affected by the debacle in the United States.
“There is no reported exposure of Philippine banks to Silicon Valley Bank,” Diokno said. “I think the US Fed and US finance authorities have successfully ring fenced the banking turmoil.”
PH banks marked safe from Silicon Valley Bank crisis
Meanwhile, the Bankers Association of the Philippines (BAP) expressed confidence that the recent developments in the US financial system have no substantial or material impact on Philippine banks.
“Banks have diversified deposit bases that include all sectors of the Philippine economy, allowing them to continuously provide the liquidity needs of their clients,” the BAP said in a statement on March 14.
“Additionally, banks in the Philippines continue to have capital and liquidity ratios that exceed the requirements set by the Bangko Sentral ng Pilipinas,” it added.
The group also said that measures implemented by the BSP provide the necessary support that allows the Philippine banking system to withstand economic shocks.
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