Philippines Is Ready for Fed Taper With Tools to Curb Outflows

The Philippines is prepared for a possible tapering of the Federal Reserve’s record stimulus with policy measures to deal with capital outflows, central bank Deputy Governor Diwa Guinigundo said.

“We can ride out any turbulence, as we have policy tools in our hand that we can deploy anytime,” Guinigundo said in a briefing in Manila Sept. 21. The measures include boosting dollar and peso liquidity, careful surveillance of risk, use of forward guidance, tapping currency-swap agreements, and possible tightening of monetary policy, he said.

Emerging-market nations should prepare for an eventual reduction in U.S. stimulus as higher borrowing costs will come, World Bank Managing Director Sri Mulyani Indrawati said last week. Bangko Sentral ng Pilipinas kept its benchmark interest rate at a record-low 3.5 percent for a seventh meeting this month after inflation eased to a four-year low.

The peso fell 0.2 percent to 43.14 per dollar as of 11:34 a.m., according to Tullett Prebon Plc. The Philippine benchmark stock index gained 0.5 percent.

Speculation over the future of the Fed’s quantitative easing has whipsawed global assets since May, when Chairman Ben S. Bernanke first signaled cuts may start in 2013. Liquidity and credit growth in the Philippines are rising in tandem with the economy, and policy makers don’t see bubbles in the property market, Assistant Governor Cyd Amador said on Sept. 21.

Philippine gross domestic product rose 7.5 percent in the second quarter from a year earlier, matching China’s pace. Rising demand for real estate in the country is for consumption and not for speculative or investment purposes, Amador said, adding that the central bank regularly consults with property companies and banks to prevent bubble risks.

Legislative Changes

The central bank is seeking an increase of 150 billion pesos ($3.5 billion) in its capital from the current 50 billion pesos authorized in its charter, Deputy Governor Vicente Aquino said Sept. 21. The central bank has proposed legislative changes to its charter including exemption from taxes and the authority to issue debt to better manage liquidity, he said.

“Additional capital and the ability to issues its own debt would boost confidence in the central bank’s ability to manage macroeconomic stability and will send a signal to the market that the BSP can curb extreme volatility,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. “This should be an urgent priority for lawmakers.”

President Benigno Aquino is raising spending to a record this year and seeking more than $17 billion of investment in roads and airports. Fitch Ratings and Standard and Poor’s this year awarded the Philippines its first investment-grade scores, while Moody’s Investors Service, which ranks the nation a level below, has said it is reviewing its rating for an upgrade.

Before it's here, it's on the Bloomberg Terminal.