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- Category: Top News
- Published on Wednesday, 26 June 2013 21:34
- Written by Bianca Cuaresma
Volatilities in the Philippine financial markets caused by a possible cut in the fiscal stimulus program of the United States is seen as temporary and should not cause a breach in the central bank’s inflation target, the Bangko Sentral ng Pilipinas (BSP) said on Wednesday.
According to BSP Governor Amando M. Tetangco Jr., the central bank will “maintain its strategic market presence” in the local currencies market, both to avoid excessive volatilities and to provide appropriate market guidance.
“If you look at the portfolio flows, year-to-date, it is still positive, substantially more than the net inflow we saw last year. So I really think this [market volatility] is just temporary,” Tetangco said at the sidelines of the forum hosted by The Asset, a financial industry publication, held at the Hotel InterContinental in Makati City.
The central bank governor said that while global events caused volatilities in the country, its domestic strength should continue to support the Philippines once the markets adjust to the changing global conditions.
He again cited the country’s strong fundamentals, its sound banking system, robust external position and the country’s adequate liquidity conditions, saying these details are “undeniable [proof], not clichés and should not be taken lightly.”
He also said the BSP does not see consumer prices rising quickly and pose a threat to inflation as a result of the current state of the local financial markets.
“I don’t think there will be a significant change from the outlook of the BSP; inflation being closer to the lower end of the target range for this year,” Tetangco said.
“We are confident we will be able to meet our inflation targets this year and next year,” he quickly added. The inflation forecast that the BSP regularly releases as part of its signaling mechanism is expected this week.
Tetangco expressed confidence the Philippines would bounce back soon enough and reiterated the futility of imposing capital controls and other restrictions to calm the market.
“The Philippine fundamentals are solid, and we have built up safeguards to ride out the volatilities. Therefore… at the moment…there is no need for us to deviate from our current policy stance.
“Our thrust has been to allow reasonable access to domestic-dollar liquidity for legitimate foreign-exchange obligations and entry into markets, consistent with our inflation and financial stability objectives. We are not veering away from that basic policy. We are not looking at capital controls right now,” he added.
The BSP governor also said volatility is inevitable and part of the continuous integration of global markets.
“Times like these remind me of the one clear fact I have learned, first as head of BSP’s Treasury and now as BSP governor: ‘There is always volatility on the way to recovery. The road to recovery is never a straight path.’ And the one clear lesson I have learned from periods of volatility is this: ‘Keep the main things, main.’ In other words, focus on your goal and don’t be distracted because volatility is inevitable,” Tetangco said.
“Our financial markets have been affected by the recent global developments because financial markets have become increasingly integrated. We pushed hard to achieve investment-grade rating precisely because, in a globally integrated market, the independent rating of a credit-rating agency helps market participants distinguish between good and better investment destinations,” he added.
Tetangco also said that while all these events helped erode the value of the peso and sapped confidence among equities investors, such market action was a “good thing” because it helped reduce the likelihood of asset bubbles forming.
“This market price action is a good thing. It is good because it helps put a brake somehow on the exuberance, and thereby helps reduce some of the risks from bubble formation in certain asset classes that could lead to more financial market imbalances… the process could actually create opportunities for those who keep their eye on the ball,” he said.
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