By Melissa Luz T. Lopez, Senior Reporter
RISING global interest rates and inward-looking trade policies among major economies remain the biggest sources of risks for the Philippine economy, although the central bank chief said it has buffers to cushion such blows.
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said rate hikes planned by central banks from advanced economies particularly the United States, coupled with rising populism, continue to pose as the biggest threats to the domestic economy, but clarified that the country remains well-positioned to withstand possible downturns.
“From a credit perspective and depending on the timing and pace [of policy tightening], this can adversely affect the capacity to pay of borrowers especially those who are highly-leveraged entities,” Mr. Espenilla said in a speech before the Credit Management Association of the Philippines on Friday.
“Being a small open market economy, the Philippines is vulnerable to abrupt shift in global market sentiments which can induce large and sudden capital lows and contribute to volatility in the financial market.”
Federal Reserve officials have signalled confidence towards the US economy and alluded that a third rate hike may be introduced later this year, coupled with tightening hints from Europe and Japan.
A retreat from multilateralism towards inward-looking policies could also narrow trade and financial linkages that could dampen global output and local exports, Mr. Espenilla added, noting that the Philippines has what it takes to rise above such challenges.
“The BSP stands ready with preemptive measures to mitigate any undue risk build-up in the financial system. Meanwhile, our solid macroeconomic fundamentals that we enjoy today continue to provide us with buffers to weather potential external shocks,” the central bank chief said.
The Philippine economy grew by 6.4% during the first quarter, slower than the 6.6% logged during the last three months of 2016 but still one of the fastest in Asia. The BSP also holds hefty dollar reserves, well above the international standard of a three-month import cover.
Mr. Espenilla, who assumed the top central bank post on Monday, said the regulator also “continually strengthens” its watch on emerging systemic risks to watch out for emerging pockets of risky credit.