BSP ready to step in if China slowdown heightens

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is ready to step in with contingency measures if the economic slowdown in China and other global economic tensions heighten.

Monetary authorities are ready to utilize macroprudential measures if the country’s trade is affected by China’s weakening economy, said BSP Governor Amando Tetangco Jr.

“Should our trade be adversely affected, especially if growth in China slows significantly more than market expectations, we also have room to support growth and manage inflation, given our policy rates are still relatively higher than zero,” he explained.

China had a flat GDP of 7% in the second quarter of the year amid weak investment and trade.

The world’s second largest economy is currently undergoing a slowdown and is expecting growth of 7% this year. China’s GDP growth eased to 7.4% last year, a 24-year low, and down from 7.7 % in 2013.

China’s stock market has also recently seen a dramatic plunge losing more than $3 trillion in value in less than a month from its June 12 peak.

The Chinese government has recently announced a $453 billion support fund in an attempt to end the market crash having seen earlier interventions fail.

China slowdown similar to capital outflows last year

Tetangco is confident the Philippine economy will be able to weather the effects of China’s slowdown and compared it to the effect of the tapering of the US Fed’s quantitative easing program last year. 

“I would say, if the magnitude of price movements is in the order of those seen during taper tantrum, then we should be able to weather that,” the BSP chief said.

Massive capital outflows were seen last year as funds shifted back to the US as the quantitative easing program started in early 2014.

Economic recovery in the US prompted the US Fed to slowly decrease its monthly purchases of Treasuries and mortgage bonds.

This resulted in capital flowing out of the emerging markets including the Philippines and back to the US as investors rebalanced their portfolios.

Federal Reserve chair Janet Yellen earlier reiterated that the US Fed remains on track to raise rates this year if the US economy improves as expected.

Measures adopted last year by the BSP included the imposition of higher minimum capital requirement for banks, the implementation of a comprehensive credit risk management framework, and the increase of the reserve requirement for banks by one percentage point.

Other measures include the limits on banks’ exposure to non-deliverable forwards, prohibitions on access to special deposit accounts (SDAs) for non-residents and investment management accounts.

“The market has many moving parts. Thus we need to remain vigilant especially for emerging new linkages of risks and creative in our approach to utilizing macroprudential measures,” Tetangco said.

The BSP’s Monetary Board has kept key policy rates unchanged since September last year. The overnight borrowing rate is at 4% while the overnight lending rate is at 6%. – Rappler.com