BSP tells market to keep calm; Phl to weather volatitlity

MANILA, Philippines - Government officials have  downplayed  concerns the eventual scaling down of stimulus measures from the United States will create financial instability in the Philippines.

"Such expectation should recognize that the US Fed is gunning for a gradual, calibrated reduction of monetary stimulus," Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said in a text message.

On Wednesday, US Federal Reserve Chairman Ben Bernanke said the world's largest economy  may "moderate the pace" of its $85-billion bond purchases later this year on signs of US recovery.

The statement confirms market speculations that cheap money from the five-year stimulus program will end soon, driving investors away from emerging markets such as the Philippines.

As of the close of morning trade Thursday, the Philippine Stock Exchange index lost 3.09 percent to  6,312.21. The peso opened at 43.45 to a dollar, plummeting further from one-year low close on Wednesday.

Strong fundamentals

Guinigundo said the country's "strong fundamentals" will cushion the impact of market volatility.

National Treasurer Rosalia de Leon told reporters domestic investors would provide "support" to the financial markets as foreigners find their way back to the US.

"We expected this... At the end of the day,  investors will look at strong fundamentals," De Leon said.

The Philippines expanded by 7.8 percent in the first quarter, the fastest in Asia, on the back of an inflation rate that fell at the low-end of the BSP's target of three- to five-percent.

At the same time, De Leon said domestic markets remain very liquid, with latest figures showing money supply growth hit 13.2 percent in April. In March, domestic liquidity grew 13.3 percent, the fastest in four years.

On the foreign exchange market, Monetary Board member Felipe Medalla said once investors "realized" the country is in good footing, the peso will "normalize and stabilize."

The Philippine peso, one of Asia's best performers last year, has lost 5.31 percent of its value versus the greenback when it closed at 43.23 on Wednesday.

"We shall continue to monitor the developments because the situation could be a result of quick reaction to the recent announcement of the Fed...," Guinigundo said.

Shanaka Jayanath Peiris, representative of the International Monetary Fund, said the Philippines is "very strong" and has enough reserves to cushion outflows.

'Positive side of things'

On the flipside, Purisima said a recovery in the US  or n the developed markets  will actually "benefit" the country's exporters.

Guinigundo agreed: "Such a Fed stance...should translate into constructive opportunities especially for emerging markets like the Philippines."

Merchandise exports plummeted by almost eight percent to $16.12 billion in the first four months of the year, latest government data showed. The US is one of the primary export markets for the Philippines.

"As you know, exports become the lone drag to growth in the first quarter," Purisima said.

"We should look at the positive side of things," he added.

Government focus

Purisima said the Aquino administration will focus on "mobilizing" the country's savings to drive the economy. Borrowings, he said, will continue to be sought from domestic sources.

Treasurer De Leon said there will be no change on borrowing rate projections. "We are already borrowing at nearly zero percent," she said.

Under the budget, the government expects 91-day Treasury bill rate at two percent at the lowest.

Guinigundo expects foreign direct investments (FDI) to rise as the US recover. As the dollar strengthens, families of overseas workers will also have more purchasing power.

"The market seems to be still digesting the full meaning and impact of the Fed view," he said.

Medalla reiterated the Philippines is in a good position to weather market volatility.

"We can easily overcome the effects of this," he said.