The Market Monitor Minding the Nation's Business
The Philippines’ rock-solid macroeconomic fundamentals and the Duterte administration’s infrastructure buildup strategy will create enough fiscal and monetary buffers for the country to ride out external shocks, such as the latest move by the US Federal Reserve (Fed) Board to raise interest rates, Finance Secretary Carlos Dominguez III said.
Dominguez said the government is maintaining its growth targets for the short and medium term, as its priority programs are on course to keep the Philippines one of Asia’s fastest-growing economies and make sure growth becomes a truly inclusive one.
“This Federal Reserve hike has long been anticipated,” he said. “Speculation over
this move has been one major cause of the market jitters that have riled financial markets across the globe in recent weeks.”
The normalization of the interest-rate regime in the US will likely have a calming effect on the markets in the long haul, he added.
Dominguez expressed confidence “the domestic economy remains strong and is resilient enough to ride out the initial impact of such an external shock as the Fed hike, more so with its commitment to go full steam ahead on its aggressive infrastructure program that will be a major growth driver on the Duterte watch.”
Apart from filling the massive infrastructure backlog that has for decades blunted the country’s global competitiveness as an investment haven, the government plans to spend a record P8 trillion on public infrastructure over the next six years that will keep the domestic economy on its high growth path—and insulate it from external shocks,” he added.
National Treasurer Roberto Tan also pointed out that, “the rate hike has long been anticipated” and that “the market would have to digest the impact of this move, including the foreseen three other rate increases for 2017 and the expectation of new fiscal and economic policies of the Trump presidency.”
“We remain confident that despite these external developments and market volatility, the country’s fundamentals and economic resilience will carry us forward,” Tan said. “The Duterte administration will continue to pursue its economic agenda, including aggressive investments in infrastructure and broad-based social services.”
The weakness of the Philippines peso and the local bourse after the Federal Reserve’s decision to hike key rates last Thursday were as expected, but Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. hopes the movement would be limited as the year ends.
After the two-day meeting of the Federal Open Market Committee (FOMC) on Dec. 13-14, the Fed increased key rates by 25 basis points to between 0.5 percent and 0.75 percent, which has been widely expected by markets, after noting sustained economic improvements.
Tetangco, in a text message to reporters, said that since markets have priced in a 25-basis points increase in the Fed’s key rates, the focus would be more on the “Fed dot plot, which shows a more hawkish Fed than market first expected.”
On the other hand, the BSP chief noted that “even the market would likely not dwell too much on that because the market also knows that those dots do change over time.”
“I am hopeful the recent US dollar-Philippines peso movements have also factored these in and that any further movement during the balance of the year would only just be small refinements to bank positions,” Tetangco said. “Going forward, we’ll watch for indicators on how global markets judge the potential expansionary US fiscal policy, its impact on global demand, the prices of global commodities and how these would affect our own domestic inflation and growth dynamics.”
The BSP’s policy-making Monetary Board (MB) will have its own rate- setting meeting Thursday next week, Dec. 22, and it is widely expected to keep key rates steady until at least the second quarter of 2017.