BSP ready to act vs financial shocks — Tetangco

WASHINGTON  — Philippine monetary authorities are ready to deploy macroprudential measures to address potential tightness in funding conditions as well as strong capital outflows due to shocks from interest rate hikes in the US and tensions in the Korean Peninsula.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. told The STAR the central bank could adopt sound macroeconomic policies and structural reforms to preserve the strong economic gains of the Philippines.

“We will continue to adopt sound macroeconomic policies and structural reforms to support the sustained and inclusive growth of the Philippine economy,” he said.

In a public lecture organized by the Philippine Embassy here, Tetangco said the BSP has laid down a deep set of macroprudential tools that helped the country survive the Asian financial crisis in the late 1990s as well as the global financial crisis in the late 2000s.

“The BSP can be expected to deploy liquidity provision measures to address any potential tightness in funding conditions and to continue enhancing macroprudential surveillance tools that address risks arising from capital flows and other vulnerabilities,” he said.

According to Tetangco, the BSP’s toolkit are backed by good research, empirical data, and sharp surveillance.

“The GFC has clouded many of the traditional manners of transmission of policy and altered relationships of variables. I mentioned some of these tools that were added to our toolkits since the GFC such as new liquidity windows and macroprudential measures,” he said.

The BSP chief pointed out that the regulator has improved its surveillance measures through the development of early warning systems, service consumer and business expectations and credit standards of loan officers, heat stress indices, heat stress tests, and sharper forecasting tools.

“The correctness of our assessment of current and future conditions in the operating environment will determine the appropriateness or effectiveness in the calibration and deployment of the tools,” Tetangco said.

He said the toolkits of central banks around the world have really changed as an offshoot of the global financial crisis.

The BSP chief said advanced economies led by the US, Europe, Japan, among others came up with quantitative easing (QEs) as well as zero or negative interest rates.

However, he pointed out emerging market economies (EMEs) such as the Philippines no longer rely on traditional tools to stabilize monetary conditions.