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October 01, 2022

Interagency body highlights domestic strength, external challenges

The Financial Stability Coordination Council (FSCC) highlighted the strength of the country’s economic recovery, while weighing in on key external challenges, according to outgoing Bangko Sentral ng Pilipinas Governor Benjamin Diokno.

Diokno, who is also chairman of the FSCC, said that the situation in the Philippines is significantly different from the rest of the world.

The incoming Finance Secretary said the stronger-than-expected 8.3 percent gross domestic product (GDP) booked in the first quarter reflects a trajectory that is markedly different from the prognosis of multilateral agencies for 2022 global growth.

Diokno said the expansion was driven by current consumer purchasing power and by economic investments for the future, and this place the Philippines in a position of strength in facing fast-evolving shocks in the global market.

The FSCC also identified repricing risks and developments in the oil market as the two key external challenges.

According to the Council, these risks have far reaching consequences because they may affect leverage, liquidity, the macro economy, and the country’s climate change initiatives.

The FSCC pointed out that rising inflation in advanced economies has led their central banks to raise policy rates to temper economic activity.

This is not the situation in many emerging markets, but the rate increases are expected to spillover to the rest of the world.

Rising interest rates benefit savers and those who wish to invest in financial instruments, but this gain will be met by higher costs for borrowers, covering households, businesses, and the government.

Oil is another challenge, and its effects are evident in rising pump prices. While this is raising domestic inflation, the issue is not typically addressed by monetary tools.

“We expect spillovers from the advanced economies to emerging market economies through cost-push pressures and higher risk premiums. These are not independent shocks but are interconnected at many levels, creating complex, non-stationary and interlinked cause-and-effect relationships,” he said.

The FSCC is composed of the BSP, Department of Finance, Insurance Commission, Philippine Deposit Insurance Corp. as well as the Securities and Exchange Commission.

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