Full impact of tightening has not yet ‘run its full course’ — FSCC

The full impact of the Bangko Sentral ng Pilipinas’ (BSP) aggressive monetary tightening since last year has not yet “run its full course,” the Financial Stability Coordination Council (FSCC) said in a statement on Tuesday.

The interagency body said global growth prospects are more positive compared with several months ago, although pressures from advanced economies are still evident.

“The Council’s Systemic Risk Review highlighted that the growth prospects of the Philippines’ major trading partners are expected to diverge. As market rates have swung from a lower-for-longer to a high-for-now environment, its full impact may not have yet run its full course,” it said.

To tame inflation, the BSP hiked benchmark interest rates by 425 basis points (bps) from May 2022 to March 2023. This brought the key policy rate to 6.25%, its highest level in nearly 16 years.

BSP Governor and FSCC Chairman Eli M. Remolona, Jr. said authorities must continue to be vigilant against risks even if there are no immediate signs of sector-wide pressures among corporates.

“While the high-level indicators are notable, there are many developments that we should still monitor,” he said. “This is where systemic risk surveillance is critical because we need to assess if and how changing conditions in the global and regional markets mesh with our own domestic situation.”

According to the FSCC, the interagency body has approved a broad range of actions to enhance the resiliency of the Philippine financial system to combat systemic risks.

These actions cover communication to the capital and contingent markets, as well as using the right tools and better data to manage possible contagion risks more effectively. 

“In managing systemic risks, we prepare for viable possibilities rather than forecast the most likely outcome,” Mr. Remolona added.

The FSCC is an interagency body composed of representatives of the BSP, the Department of Finance, the Insurance Commission, the Philippine Deposit Insurance Corp., and the Securities and Exchange Commission.

In July 2021, Executive Order 144 institutionalized the FSCC to focus on assessing and implementing policies to prevent systemic risk factors or company- and industry-level events that have the potential to trigger severe instability within entire industries, or even the economy.

The FSCC convenes on a quarterly basis. The regularity of their meetings may be increased “when market conditions warrant.” — Keisha B. Ta-asan