BSP ready for US debt default

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is ready to deploy measures in case the US Congress fails to raise the debt ceiling and cause the US to default on its borrowings, a senior monetary official said.

BSP Deputy Governor Diwa C. Guinigundo said the BSP has contingency and macroprudential measures to cushion the impact of a US default, which would trigger problems for financial markets all over the world.

“We have liquidity providing measures: for peso, the rediscounting [facility]; for the dollar, the assurance that the BSP will provide them as lender of last resorts,” Guinigundo said.

“We also have regulatory forbearance and then of course, macroprudential measures will also have to be considered. On top of that, if there is monetary space then we can review the present monetary stance. If we need to bring it up then we will do it; if there is scope for keeping it steady then we will keep it steady,” he said.

The US fiscal impasse has been adding to the concerns of global markets especially with the October 17 deadline to raise the debt limit fast approaching.

Failure to raise the US debt ceiling will hinder the world’s largest economy from refinancing and paying back its debts and could eventually lead to a default.

But as of Friday, there has been renewed optimism that the US Congress may soon arrive at a deal in increasing the debt limit or extending the deadline to do so.

Guinigundo noted that one of the possible effects of a US default is a rise in global interest rates.

“The next time they borrow, assuming they are able to resolve immediately or at least within reasonable period of time their obligations, people will now demand a higher premium. This impasse in the US government may result in the upper adjustment of global interest rates,  on top of the effects of the US tapering,” Guingundo said.

He declined to say, however, if this crisis will be worse than what the world saw in 2008, during the collapse of the Lehman Brothers Holdings Inc.