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PHL fundamentals to stand out anew in case of extreme volatility in global economy

Posted on February 12, 2015

By Joann Santiago

MANILA, Feb. 12 (PNA) — Continued improvement of Philippines’ fundamentals are expected to make the country stand out anew once the possible volatility in the global financial market materializes when the Federal Reserve starts hiking its key rates.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo, in a briefing Thursday, said would-be decisions of the Federal Reserve “is something that is always at the back of the minds” not only of Philippine monetary officials but also those in other economy.

Markets widely expect the Fed to start hiking rates in the middle of this year as the world’s largest economy continue to churn in positive economic data.

Possible impacts of this policy normalization have been factored in by the BSP, Guinigundo said.

”It is also among the reasons why we said monetary policy remains broadly appropriate,” he said.

On Thursday, the central bank’s policy-making Monetary Board (MB) maintained the BSP’s key rates on back of manageable inflation outlook and robust domestic growth.

To date, the central bank’s overnight borrowing or reverse repurchase (RRP) rate is at four percent and the overnight lending or repurchase (RP) rate is at six percent.

With the looming normalization in the US, Guinigundo said this may result not only to volatilities in the global financial market but also capital flight to US.

He, however, noted that the BSP has observed a synchronous movement in other parts of the world like in Europe and in Japan.

”(They) are going to the opposite direction,” he said.

While the Fed decided to end its stimulus program given the recovery of the US economy, monetary officials in the Eurozone and in Japan have decided to implement or expand their respective liquidity injecting measures to help their ailing economies.

With the projected volatility and capital outflows from emerging economies, among others, Guinigundo said investors will look for economies that have good fundamentals.

”In the Philippines they will see that despite the soft global growth the Philippines continues to grow; inflation has been stable and has promoted higher purchasing power of the general public; and fiscal policy has also been accommodative,” he said.

The central bank official said the country’s current account surplus, which has been in place since 2003, as well as drop in the proportion of the external debt to gross domestic product (GDP), are also additional plus factors that investors would certainly looked into.

“We can compare more than favorably with other emerging markets so the decision to come here is easy to make,” he said.

Guinigundo said capital withdrawals from the Philippines going to the US are seen to be countered by new inflows that are attracted by the domestic fundamentals. (PNA)

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