Moody’s retains stable outlook on Phl

MANILA, Philippines - Global credit rating firm Moody’s Investor Service has retained its stable outlook on the Philippines amid the bond tapering program initiated by the US Federal Reserve since late last year.

In a report, Moody’s said it has retained its Baa3 credit rating on positive outlook, with a low 29.3 percent vulnerability from external sources, for the Philippines.

It also pegged its inflation forecast at an optimistic 3.2 percent this year, and estimated 39.1 percent in government debt as a percentage of gross domestic product (GDP) for next year.

“We see moderate risk exposure in Malaysia (A3 positive), Philippines, and Thailand (Baa1 stable), but these would be insufficient to provoke major sovereign credit distress even if global liquidity conditions were to sour significantly,” the report said.

Moody’s said that credit quality for Asian sovereigns, financial institutions, and non-financial corporates would remain resilient to changes in US monetary policy.

The report said that structural factors should be sufficient to safeguard against a region-wide credit or macroeconomic shocks.

The Asian banking system likewise is viewed as being well positioned for external shocks, including tighter domestic credit conditions and foreign currency volatility.

However, Moody’s warned of several adverse scenarios.

“There is a risk of renewed market turbulence in Asia next year if the withdrawal of US monetary stimulus were to have larger effects on capital flows than currently anticipated,” it said. “This risk is particularly pertinent, given that portfolio inflows into Asia have rebounded strongly since the 2008-2009 global financial crisis and global market volatility is historically low.”

Higher yielding Asian assets could become less attractive to investors at the margin as US Treasury yields rise, ad capital flows into Asia would likely slow as a consequence.