Philippine markets going through storm, says financial stability panel

The Philippine market is currently going through a global “storm” given the ongoing systemic risks which need to be addressed, the Financial Stability Coordination Council (FSCC) said in its latest report.

According to the Financial Stability Report 2022, the global economy continues to face supply bottlenecks and inflation has continued to be on an uptrend, prompting monetary authorities to tighten their respective policies.

“The crux of our systemic risk assessment is that the market is going through a storm. By their very nature, there is considerable uncertainty with storms and the extent of damage they can cause,” the report read.

“Some will face more benign conditions, while others will feel the full brunt. However, none of this is known in advance. The question then is how prepared a community is for more rains, and more rainy days,” it added.

The FSCC is an inter-agency council tasked to formulate a Macroprudential Policy Strategy Framework, which in turn serves as a guide on policy interventions.

The FSCC executive committee is chaired by the Bangko Sentral ng Pilipinas (BSP) governor and includes members such as the Finance secretary, the Insurance Commission (IC) commissioner, the Philippine Deposit Insurance Corp. (PDIC) president, and the Securities and Exchange Commission (SEC) chairman.

Among the risks cited by the FSCC are the volatility in the global oil market, the disruptions brought about by the COVID-19 pandemic on the global supply chains, and climate security.

“That we are in the midst of systemic risks is no longer debatable. Like the COVID-induced pandemic, the dislocations are not insignificant. These have not yet elevated to the level of economic contractions but certainly the costs in the market and to consumers are palpable,” it said.

To address this, the FSCC said authorities are expected to respond to high inflation with tighter policy rates, but the persistence of high inflation and the policy response could cause economic disruptions.

Locally, inflation accelerated to a fresh 14-year-high of 8.1% in December to bring the full-year 2022 average to 5.8%, higher than the central bank’s target range of 2% to 4%.

The BSP last year hiked rates to the highest level in 14 years — the overnight reverse repurchase rate to 5.5%, the overnight deposit facility to 5.0%, and the overnight lending facility to 6.0%.

It expects inflation to peak this month and average 5.8% for the full-year 2022, before starting to decelerate by January and move back to the 2% to 4% target range by July next year.

“The Council remains cautiously optimistic of the country’s prospects but realistically grounded on the likelihood of change,” FSCC Chairman and BSP Governor Felipe Medalla said in the report.

Medalla noted that while consumption remains as the market invests into durable equipment and the banking system remains strong, the FSCC continues to monitor the spillover effects of supply bottlenecks and tightening financial conditions in advanced economies.

“That these spillovers create their own round or risks once they hit onshore is a particular challenge for smaller economies who are price-takers in the global market,” he said.

“We need to address the systemic risk issues as they unfold today, but we also must think of how these actions affect us in the future,” the FSCC report read. —KG, GMA Integrated News