BSP: US credit problem to have limited impact on RP

The Bangko Sentral ng Pilipinas (BSP) expects any impact on the Philippines from global credit jitters to be minimal, BSP Governor Amando M. Tetangco Jr. said yesterday.

“Any impact on the Philippines will be largely indirect, mainly in the form of risk aversion. It is expected to be limited,” Tetangco said.

Moreover, Tetangco said the market had sufficient domestic liquidity and this would limit the effects of the global sell-off spurred by jitters over the US subprime market.

“More fundamentally, the increased availability of longer term funding in pesos has also reduced the country’s vulnerability to adverse external market developments,” Tetangco said.

Wire news reports yesterday indicated that central banks in Asia have made moves to inject extra cash into their banking systems to join the global effort by monetary officials to calm the panic in the credit markets.

Tetangco said that because there was ample liquidity in the system, the BSP had less need to do this than other central banks, particularly the European Central Bank which pumped a record amount of cash into Europe’s money markets to make sure that their banks had adequate short-term funds.

The market has been spooked by fears that the fall-out from the meltdown in the US subprime market would be worse than originally projected.

Already shaky, sentiments were not helped by political developments in Pakistan which prompted a sell-off of Philippine sovereign bonds as investors dumped their holdings in emerging markets as a whole.

According to BSP Deputy governor Diwa Guinigundo, however, the initial reaction to the Pakistan crisis is not expected to last either. Eventually, he said investors would differentiate the Philippines from other countries in the emerging markets portfolio.

“These are ripples that is likely to eventually dissipate once the market sorts itself out,” Guinigundo said.

Although Asian economies have grown less dependent on the US economy for growth and momentum, the crisis in confidence in the US subprime market is expected to spill over markets in Asia.

HSBC Global Research said the other day that although economic fundamentals throughout Asia was strong, red lights are still blinking as the market realized that fundamentals are no longer the issue.

“It’s not about fundamentals, but confidence,” said HSBC Global Research analyst Frederic Neumann.

“Recent credit jitters raised questions about the vulnerability of Asian countries to a possible trip-up of the US economy,” Neumann said. “But Asian economies remain fundamentally robust, limiting the risk of a significant economic slowdown in the region.”

Having said this, Neumann pointed out that confidence mattered and the financial market contagion was likely to last until the uncertainties in the US financial market subsided.

According to Neumann, the impact of the market turbulence in the US was likely to persist on asset prices in Asia but on the whole, slower US growth would not materially affect the region’s overall economic outlook.