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PH financially stable amid general risks

Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. has assured Japanese investors that the Philippines remains financially stable amid risks in domestic and global markets.

In his presentation during the Philippine Economic Briefing in Tokyo on Tuesday, Espenilla said the BSP stands watchful and vigilant of developments in the local market, particularly the increasing price pressures and the uncertainties in the external front, such as political and policy uncertainties.

Espenilla noted that the 4.1-percent inflation rate in the first five months of the year, which is a little more than the 2-percent to 4-percent target range of the government, is mainly driven by significantly higher world pump prices, disruptions in food supply, and higher excise taxes.

However, he also mentioned that such price pressures are expected to ease in the coming months.

He pointed out that the central bank stands ready to launch timely policy adjustments to maintain a favorable inflation environment.

Last May 10, the Monetary Board raised policy interest rates by 25 basis points “to temper any build-up in inflation expectations and help arrest potential second-round effects.”

On Wednesday, the Monetary Board will again conduct its policy meeting.

“We stand ready to adjust further as may be necessary to keep inflation expectations well-anchored,” Espenilla said.

He also mentioned that the country’s balance of payments (BOP) remains healthy, backed by strong structural foreign exchange inflows from business process outsourcing revenues and overseas Filipinos’ remittances.

Although it revised upward its BOP outlook at end-2018 to USD1.5 billion from its initial projection of USD1 billion, the central bank chief said the country’s external payment position is still “very manageable” and the BSP has built “sufficient liquidity buffers against global headwinds.”

Meanwhile, Espenilla cited external risks and challenges that the BSP is closely monitoring, so as to develop and deploy macroprudential measures.

These risks include political and policy uncertainties, threats of protectionist policies, uncertainty over the pace of the United States Federal Reserve System policy normalization, and spillovers from the Chinese economy.

“To address these concerns, we have built up sufficient buffers in our external position and have a range of monetary and prudential policy tools to mitigate the impact of external shocks,” the BSP governor said.

On the other hand, he said, to counter the threat of protectionist policies and geopolitical risks, “the Philippines has been building relationships with other countries,” diversifying exports markets and finding additional sources of foreign direct investments.

“We are prepared to deal with risks emanating both from external and domestic sources that could potentially derail our path. Rest assured, the BSP stands watchful and vigilant, ready to act and implement financial sector reform opportunities for the country,” Espenilla said.