The interest-rate adjustments expected from the United States Federal Reserve (the Fed) resulting from more robust economic indicators in recent months will likely expose “fragilities” in emerging-market economies like the Philippines, the Bangko Sentral ng Pilipinas (BSP) said.
BSP Governor Amando M. Tetangco Jr. warned of trouble down the line for emerging markets, as the US Fed allows interest rates to lift and central banks in other parts of the interconnected global market fail to act appropriately.
Tetangco said the negative impact could take many forms, including financial-stability pressures from the repricing of credit; sharp downward adjustments in prices of real and financial assets; and capital-flow volatilities that could reemerge as global investors react to news.
If not managed well, these could result to unwarranted tight financial conditions in emerging-market economies, according to Tetangco.
“In turn, these could negatively feedback to the real economies of emerging markets,” Tetangco said at the Philippine Mid-Year Economic Briefing held at the Philippine International Convention Center on Tuesday.
On the local front, Tetangco said the BSP manages market reaction through calibrated hikes in monetary policy rates.
“Although our series of monetary tightening actions in the past few months have been principally aimed at managing inflation expectations, these have also been put in place to help guide the domestic financial market to a smooth transition as monetary policy begins to normalize in the US,” Tetangco said.
On the domestic economy, Tetangco cited key challenges related to addressing potential supply-side bottlenecks, bridging identified gaps in existing infrastructure, minimizing the impact of natural calamities and promoting economic inclusion.
The central bank governor said the Philippines can manage domestic challenges to growth and achieve sustainable and durable expansion by focusing on the three I’s of the economy—infrastructure, inclusiveness and institutions.
According to him, the need for infrastructure in the country is “straightforward” and “serious.”
Ramping up infrastructures in the country should aim to deliver important services and facilities to Filipinos and enhance the attractiveness of the country as an investment destination.
Second, the central bank chief said the government must work on the inclusivity of growth by enabling the program to cast a wider employment net in a broader set of industries while remaining entrepreneur-friendly.
Last, Tetangco said creating institutions anchored on ethical and transparent governance systems will help the country stretch growth to a more sustainable and durable timeline.
Bianca Cuaresma