Volatility to last for months – officials

MANILA, Philippines - Volatility in the financial markets could last for months, but the Philippines will survive given its strong fundamentals, officials said yesterday.

 â€œThese are interesting times again,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said in a speech before financial officers in The Asset Forum in Makati City.

The central bank chief said the “furor” would “subside” once investors get a complete grasp of the US Federal Reserve’s pronouncements that it may scale down stimulus measures this year.

Investors have been rattled by concerns cheap money from the $85-billion monthly bond buying program of the US would end soon, prompting them to reposition their holdings back to the world’s largest economy.

The volatile scenario “will be there for a while, possibly for months,” said International Monetary Fund resident representative Shanaka Jayanath Peiris in the same forum.

But for National Treasurer Rosalia de Leon, what is important is that the Philippines is in a better position than it was five years ago. “The Philippines is no stranger to heightened volatility,” she said.

The sentiment-led slump in the region led to a drop in the Philippine Stock Exchange index by as much as 6.5 percent to the “bear” territory last Tuesday. Yesterday, it closed up 5.7 percent at 6,118.94.

The volatility also hit the foreign exchange market, with the peso touching the 44-peso level versus the greenback last Monday before it recovered to close at 43.43 yesterday.

“There is always volatility on the way to recovery. The way to recovery is never a straight path,” Tetangco said.

 â€œOne clear lesson I have learned from periods of volatility is this: ‘Keep the main things, main.’  In other words, focus on your goal and don’t be distracted because volatility is inevitable,” he added.

The BSP chief reiterated the Philippine economy remains “solid” with the “convergence” of strong growth and low inflation. The banking system remains healthy, he said while the external payments position continues to be robust.

Growth hit 7.8 percent in the first quarter on the back of a three-percent inflation. Tetangco said consumer price increases would remain “benign” until 2015 which would likely keep interest rates at low levels.

 â€œThere is no reason for us to deviate from our recent policy stance...monetary policy will continue be conducted in consideration of our inflation outlook... which in our current assessment is benign,” Tetangco explained.

De Leon, for her part, said government finances remain in check with deficit of P42.8 billion as of May, accounting for just 18 percent of this year’s P238-billion cap.

“Make no mistake: we are not in dire need of cash,” she said in the forum.

At the end of the day, both Tetangco and De Leon said the financial market correction offers opportunities which investors should take advantage.

 â€œAs the global economy enters a new phase, we remain ever vigilant about potential risks and opportunities financial markets will offer,” De Leon said.