BSP ready to face withdrawal of stimulus measures abroad

MANILA, Philippines - The Philippines stands ready to respond should the planned withdrawal of stimulus measures abroad results into capital outflows.

“While there may be a possible effect of an exit strategy, I think investors will still look at the fundamentals, the prospects of individual countries. So it does not mean that suddenly they will just exit,” BSP Governor Amando Tetangco Jr. told reporters yesterday.

Should it be necessary, the central bank “have the tools” to respond to possible inflow of capital to the US once it decides to scale down or stop its quantitative easing (QE) program.

On Wednesday, US Federal Reserve chairman Ben Bernanke told a Senate inquiry that QE — which involves the buying of $85 billion worth of securities every month — is “providing benefits” to US economy still reeling from the effects of the 2007 financial crisis.

While he warned against “premature tightening,” minutes of the meeting of the Federal Open Market Committee — the Fed’s policymaking body — showed that some members wanted to  “adjust the flow of purchases downward.”

This has disgruntled Asian financial markets, causing investors to fly back to safe haven assets such as the dollar. The peso plunged to 41.69 versus the greenback on Thursday, its weakest level in almost eight months.

In the long run though, Tetangco said it should be expected that QE will stop as the US economy recovers and that Asian nations, such as the Philippines, should prepare for contingencies against outflows.

Policymakers and analysts alike have feared that an end in loose monetary policy abroad would provoke investors to come back to the US and withdraw funds from Asia, which has utilized these flows to boost growth.

For the Philippines, however, Tetangco said outflows should be minimal.  

 â€œMaybe there will be some outflow, but I don’t think it will be massive because the fundamentals of the country continue to be sound and prospects continue to be favorable,” he said.

“We are monitoring that because at some point, the advanced economies will adopt exit strategies from their expansionary policies… In any case, we have the tools to respond to that,” he added.

The country has enjoyed massive inflows in the past year, owing to its strong economic performance characterized by strong 6.6-percent growth against inflation of 3.2 percent.