Philippines’ Tetangco Sees Better Growth as Demand Holds Up

  • Capital inflows have returned, boosting financial liquidity
  • Central bank will intervene to curb volatility in currency

Amando Tetangco.

Photographer: Veejay Villafranca/Bloomberg

Growth in the Philippines probably matched or exceeded the 6.9 percent pace in the first quarter that made it one of the fastest-expanding emerging markets, according to the nation’s central bank governor.

“Based on leading indicators, we believe that the rate of growth will continue, so it is going to be about the same, if not better” in the second quarter, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in an interview on Monday in Bali, where he attended a conference of global central bankers. “Exports have slowed but domestic sources of growth continue to be strong.”

The Southeast Asian economy expanded at the fastest pace in almost three years in the first quarter, spurred by spending ahead of a presidential election in May. The government of new President Rodrigo Duterte is forecasting growth of 6 percent to 7 percent this year.

Central banks in Asia, from Indonesia to South Korea, have been easing policy this year to counter a slowdown in the global economy and the fallout from Britain’s shock vote to exit the European Union in June. The Philippines central bank lowered its benchmark rate to 3 percent in May as part of an overhaul of its policy framework.

“We believe we have enough policy space to deal with exogenous shocks,” Tetangco said.

Fed Impact

A dovish turn by the U.S. Federal Reserve earlier this year has helped reverse risk aversion on global markets and send capital flows back to the Philippines, he said. While some of the inflows may be short term in nature, the central bank is well placed to absorb their impact, according to the governor. The likelihood of fewer-than-expected U.S. rate hikes coupled with Japan’s moves to stimulate growth are soothing nerves, he said.

“Both of these moves have been quite positive for the market and have led to some risk-on behavior again,” he said. “As a result we have seen capital flow back to emerging markets, including the Philippines. The capital flows are providing liquidity to the financial system.”

The benchmark stock index has gained 16 percent this year, while the peso is up 0.2 percent against the dollar.

Duterte pledged in his first state of the nation speech last week to improve on the economic policies of his predecessor, including lowering taxes and easing restrictions on foreign investment. Tetangco said the government’s plan to spend more on infrastructure will be a positive for the economy. 

The currency’s moves are in line with regional peers but if fluctuations become disorderly, the authorities will intervene, the governor said.

“What we don’t want to see is too much volatility or too sharp movements in the exchange rate,” he said. “That is when we reserve some scope for official action in the market if there is too much volatility.”

The central bank is also seeking to bolster the reputation of its financial system following the disappearance of $81 million of reserves owned by Bangladesh via the Philippines. Thieves hacked into the account of the Bangladesh central bank at the U.S. Federal Reserve and routed the funds to accounts at Manila-based Rizal Commercial Banking Corp. 

Tetangco made it clear that banks themselves have to play a central role in enforcing anti-money laundering rules.

“The powers have always been there,” he said. “It’s a matter of the banks complying with the regulations. At the end of the day, the banks as well as the public need to guard against” cyber crime and hacking, he said.

The BSP in June revoked the license of Philrem Service Corp., the remittance company linked to the transfer of the stolen funds to local casinos. The company has appealed against the ruling. Two other remittance firms also face similar penalties.

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