Robust domestic activity will shield the Philippines from monetary policy tightening across advanced economies and possible threats to global growth, the Bangko Sentral ng Pilipinas (BSP) said.
In a briefing on Friday, central bank Governor Nestor Espenilla Jr., said that global prospects had improved with indicators suggesting a firmer recovery across advanced and emerging economies, driven by improved investment and trade flows, solid industrial production and stronger business and consumer confidence.
“Against this backdrop, we remain watchful over potential forces that could dampen the global growth momentum that could spill over to the Philippine economy,” he added.
Some degree of uncertainty has been introduced by the varying pace of policy normalization at central banks, Espenilla noted.
For instance, the US Federal Reserve has begun unwinding its bond purchases and is widely expected to raise interest rates anew before the year ends. Across the Atlantic, meanwhile, the European Central Bank is also said to be considering how to taper its asset purchases given stronger growth on the continent.
“While we expect these developments to proceed in a well-calibrated and orderly manner, the unwinding of accommodative policies could have knock-on effects on the rest of the world such as capital flow reversals from emerging economies like the Philippines,” Espenilla said.
On the domestic front, the Bangko Sentral chief said that strong economic activity — anchored on higher government spending and household consumption — would provide some insulation against external headwinds.
Inflation has also remained manageable, Espenilla said, staying within the 2 percent to 4 percent target.
The Bangko Sentral’s third quarter inflation report released on Friday noted that the rise in consumer prices had stayed at 3.1 percent for the period, the same as in April-June, as higher non-food prices were offset by low food prices.
Solid macroeconomic fundamentals were also providing resilience and continuing to buoy financial markets, Espenilla said.
“During the quarter, the Philippine Stock Market index rose, spreads on the country’s debt narrowed and investor appetite for local govt securities remained healthy,” he noted.
The inflation report cited a 3.2 percent quarter-on-quarter gain during the period, to an average of 8,105, for the Philippine Stock Exchange Index.
It also noted that results of Treasury bill auctions conducted in the third quarter continued to show robust demand with total subscriptions amounting o P271.7 billion, about 2.6 times the P105 billion total offered amount.
“The Philippine banking system also remains sound marked by a continued increase in assets, lending and deposits,” Espenilla said.
Lastly, he said the peso had depreciated gradually and moderately against the US dollar —in line with a flexible exchange rate policy — as the market reacted to the emergence of a moderate balance of payments deficit and expectations of higher interest rates abroad.
The peso depreciated 1.93 percent and 7.44 percent on a quarterly and annual basis against the US dollar, respectively, the BSP inflation report noted.