BSP keeps eye on uneven growth

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Sunday, January 11, 2015

MONETARY POLICIES. BSP Governor Amado Tetangco says global growth will be uneven, with some economies doing strongly while others he described as fragile, which means monetary policies are expected to diverge. (SUN.STAR FILE)

AS FAR as the Bangko Sentral ng Pilipinas (BSP) is concerned, 2015 will be “a year of challenges and opportunities,” Governor Amado Tetangco said.

In a speech delivered in Manila last week, he said global growth will be uneven, with some economies doing strongly while others he described as fragile, which means monetary policies are expected to diverge.

“To us, having protracted uneven global growth is a cause for concern as this could have significant implications for our own growth dynamics and impact trade and the service industry,” he said.


Tetangco said policy divergence in advanced economies have an impact on domestic financial markets. He pointed out that if the US economy continues to strengthen, yields on US dollar assets would rise. “The growing difference in policy stances among major economies could result in polar destinations of capital flows and in the process…heighten volatilities in our own financial markets -- including the peso, equity prices and yields on bonds.”


With that scenario, he assured that the BSP will be watchful and ready to implement the right policy actions that would minimize any adverse impacts of volatile capital flow movements.

He said past actions addressing potential risks to price and financial stability in the country allow them enough policy space to consider measures that could be required by emerging monetary conditions.

Tetangco assured that they go through a strict process in operationalizing their policies. This includes coordinating with other government agencies such as the Development and Budget Coordination Committee, which formulates growth projections and approves inflation targets. He explained that the BSP incorporates growth targets into their own inflation forecasts and makes the necessary adjustments to the policy rates
to ensure inflation is within approved targets.

This year, the DBCC is projecting the economy’s growth at seven to eight percent within an inflation target range of two to four percent.

Tetangco believes the risks to inflation this year “are broadly balanced,” with higher utility rates and transport fares counterbalanced by lower international oil prices.

He expects 2015 inflation to be within target arrange and will provide the BSP flexibility to keep policy rates low and stable.

On the exchange rates, he said their policy remains as they allow market forces to determine the outcome. They expect some volatility in the market but core investors will remain invested in the country because of positive growth prospects and sound fundamental he said the BSP maintains a presence in forex markets during periods of volatility to keep movements in sync with fundamentals and with those in neighboring countries.

“This should reassure you that the BSP does not rely on a crystal ball nor does it craft policy in a vacuum.”

In assessing 2014, Tetangco said the Philippine economy “stayed the course and continued to grow above trend” even when faced with typhoons, uneven growth in the global economy, political unrests in the Middle East and Russia and market uncertainties.

He said this was achieved because of the right responses they made as events unfolded.

Guide inflation

He cited that in mid-2014, inflation was headed higher as talks of tighter monetary conditions in the US and expectations rose as real and financial assets climbed. This led them to raise reserve requirements, policy rates and SDA rates.

“We did these in steps to help guide the market’s inflation expectations and to help the market better appreciate the risks inherent in the shifts in the monetary policy stances of major central banks, especially the US Fed. We also carefully communicated our policy intent to the market.”

Also strong is the country’s banking system, sustaining double-digit growth rates in lending, having solid asset growth, low non-performing loan ratios and above-standard capital adequacy ratios. Last year, the implementing rules and regulations for Republic Act 10641, a law that allows full entry of foreign banks in the Philippines, was approved.

He sees the law as beneficial as foreign banks can serve as vehicles for foreign direct investments into the country. Having them operate in the Philippines also leads to transfer of technology and the enhancement of human resource skills, which will further strengthen the banking system just as the Asean Banking Integration Framework is being developed.

Tetangco also shared the county’s achievements in micro finance, as the Economist Intelligence United named the Philippines the third most conducive environment for financial inclusion in the world.

Published in the Sun.Star Cebu newspaper on January 12, 2015.


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