Regulators flag ‘fresh rounds’ of uncertainties
MANILA, Philippines — Philippine financial regulators are staying “vigilant” amid “fresh rounds” of global uncertainties that could potentially keep interest rates elevated for much longer at a time a “sizable” amount of local corporate borrowings are falling due this year.
The Financial Stability Coordination Council (FSCC), an interagency body that includes the Bangko Sentral ng Pilipinas (BSP) among its members, said it is monitoring “potential spillovers” from abroad amid diminishing hopes for an early rate cut by the US Federal Reserve.
The FSCC said in a statement on Wednesday it had its 38th meeting soon after the release of its 2023 financial stability report last Feb. 16 to assess the economic developments in the early months of 2024.
“The FSCC recognizes that expectations at the end of 2023 of early rate cuts by the US Federal Reserve have been tempered by recent US data,” BSP Governor and FSCC Chair Eli Remolona Jr. said.
READ: Fed’s Powell still sees rate cuts, but inflation progress ‘not assured’
“That said, the council weighs the potential spillovers coming from abroad versus the resilience that the local market continues to exhibit,” he added.
Analysts are projecting the Fed to cut interest rates this year, although the exact timing of which is still the subject of talks in the market. Similar to other central banks, the BSP is widely expected to move in lockstep with the Fed to avoid pressuring the peso and stoking inflation.
More proactive role
But US inflation picked up 3.2 percent in February, from 3.1 percent in January, dashing hopes for an early rate cut by the Fed. At home, price gains broke three consecutive months of easing after quickening to 3.4 percent in February, a development that, analysts said, justified the hawkish stance of the BSP.
READ: Gasoline, shelter costs drive US February inflation higher
At its meeting last month, the Monetary Board left its key rate unchanged at 6.5 percent, the highest in more than 16 years, in what the BSP called a “prudent” move amid persistent risks to the inflation outlook.
The FSCC said the possibility of rates staying higher-for-longer could pose a problem for companies that need to repay a significant amount of debts that would mature this year.
READ: Rate cut in H1 ‘possible’–Remolona
This, the FSCC stressed, highlighted the urgency to deepen the local capital market to “better manage various risks” from the Philippines’ heavy reliance on banks for corporate financing.
While keeping its focus over medium-term goals, the FSCC said it would continue to assess the funding requirements of corporations while avoiding “possible surprises” that can have adverse consequences on the economy.
“Enhancing the capital market is an issue that is shared by all members of the FSCC,” Remolona said.
“We recognize that regulators must take a more proactive role in market development and encourage deliberate collaboration among stakeholders,” he added.
