Developments in the euro zone could spill over into the Philippine economy and financial markets and the Bangko Sentral ng Pilipinas (BSP) stands ready to address any adverse impact.
In an e-mail to reporters, central bank Governor Amando M. Tetangco, Jr. said monetary authorities were monitoring developments in the euro zone, particularly the progress of its recovery.
Jens Weidmann, Germany’s finance minister and central bank chief, last week pressed euro zone governments to pass the necessary reforms rather than rely on the European Central Bank for help, warning that another debt crisis could ensue should countries fail to shape up.
On Tuesday, Eurostat reported that public debt in the euro area climbed to €9.055 trillion as of March from €8.79 trillion at the end of 2013 and €8.906 trillion in the comparable year-ago period.
“The views, as I appreciate them, are really more designed to encourage governments to not let up in the implementation of the needed structural reforms,” Mr. Tetangco said of Mr. Weidmann’s comments.
“This is consistent with the view that monetary policy is not a ‘cure all’. The comments are timely, given markets have recently been in a state of low volatility, which has somehow reduced the pressure on authorities to continue to act,” he added.
The BSP chief said that sustained structural reforms in the eurozone, which could help economic growth grain traction, would be positive for the Philippines in the medium term.
“Concrete action from the ECB to stem a possible debt crisis should also be positive in the near term for financial markets as this builds market confidence,” he added.
Mr. Tetangco said the BSP would remain watchful of ECB policy adjustments, noting that “sustained negative deposit interest rates may lead to a weaker euro currency, which could also result in weakness in the peso as we had seen when the euro deposit rates turned negative recently.”
“That said, we maintain that we have the tools to address possible immediate market volatilities that global portfolio adjustments would generate.”
Last month, the ECB announced a series of measures aimed at ensuring that the eurozone recovery remained on track and easing pressure on the strong euro. Among others, it lowered the benchmark interest rate to 0.15% from 0.25%. It likewise said it would charge banks for parking funds at the ECB.
On the domestic front, meanwhile, a senior BSP official yesterday said upside risks to inflation had fallen from the start of the year despite escalating geopolitical tensions in the Middle East, possibly giving the Monetary Board more room to keep key rates steady during next week’s policy meeting.
“As far as we can see today, it looks like the upward pressure [on inflation] is much less compared to the previous months,” central bank Deputy Governor Diwa C. Guinigundo said on the sidelines of a business forum in Makati City.
“If you look at the current situation, both OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC oil producers have been pumping out oil in a big way so oil prices have been broadly stable,” he added, also noting that rice prices have been “easing from a high during the beginning of the year.”
Asked about the impact of typhoon Glenda on prices, Mr. Guinigundo replied: “It will affect the supply chain, but at this point it’s still too early to say how much their impact would be. But so far, based on the initial reports, the damage could be manageable.”
Inflation eased to 4.4% last month from May’s 4.5%. The BSP aims to keep inflation within 3-5% this year. It expects the rise in prices to average 4.4%. — with a report from D. E. D. Saclag
Written by: Bettina Faye V. Roc