Philippines ready for US Fed rate hike

MANILA, Philippines - The Philippines is ready for Janet Yellen.

Expectations are high the US Federal Reserve chairman will lead her board to hike interest rates for the first time in nearly a decade this week, but both the government and the private sector say the economy is ready for it.

“The Philippines, relatively speaking, will not be hit as hard like other trade-dependent, investment-heavy countries in the region, thanks to a solid macroeconomic position,” Budget Secretary Florencio Abad told The STAR in a text message.

Strong consumption-driven growth, he said, is leveraged on overseas Filipino remittances and earnings from the business process outsourcing that “shields” the country from tightening credit as a result of the hike.

Government funding is also secured as around 92 percent of existing debts have fixed interest rates, Finance Undersecretary and chief economist Gil Beltran said separately.

“If we continue to take our current path, many of our projects will remain viable under a normal rate environment,” Beltran added.

Prospects of higher rates in the world’s safe haven have pushed up local yields in the bond market as investors flee emerging countries. In last week’s auction, the benchmark 91-day Treasury bill fetched a rate 6.3 basis points up from previous offer.

While a Fed action can still push yields higher, economist Victor Abola of the University of Asia and the Pacific said the effect is likely to be “minimal” as financial markets have already priced it in.

“It’s not going to be much higher than where they are now,” Abola said in a text message.

This would allow credit to remain still relatively affordable for the private sector which, in turn, could finance expansion, Security Bank Corp. president Alberto Villarosa said.

Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said the announcement could also have muted impact on the stock and foreign exchange markets.

The Philippine Stock Exchange index plummeted 85.59 points or 1.26 percent to close at 6,735.01 last week. It has lost 6.85 percent since the end of last year.

The peso, on the other hand, has already breached the 47-to-a-dollar level, closing at 47.235 last Friday.