Peso liquidity to keep RP buoyant amid EU crisis

While liquidity tightened across Asia over the last three weeks on fears of contagion from the European economic crisis, The Bangko Sentral ng Pilipinas said it is reluctant to use the reserve requirement to defend the peso from being battered by the US dollar. Singapore and Malaysia are experiencing restricted liquidity access, but not the Philippines where interbank rates have been steady and access to finance remains unhampered, BSP Gov. Amando M. Tetangco Jr. said “I think we continue to have adequate [peso] liquidity. As for the flow of [foreign] funds to emerging markets like the Philippines, the disruption is going to be temporary. There is volatility now because of risk aversion but I don't think this is something that is permanent," Tetangco said. Despite Europe’s economic woes, the Philippine would continue to pursue its exit plans, BSP Deputy Gov. Diwa C. Guinigundo said. “Banks and people are positioning to ensure the availability of liquidity and that is something to be expected given the uncertainty in the market. But to me, this thing will also pass away," he said. The BSP previously lowered banks' liquidity reserve to 19 percent from 21 percent after the onset of the global recession to encourage lenders to let their financial resources circulate in the system. The BSP also reduced its rediscounting budget from P60 billion P20 billion because liquidity was no longer considered insufficient for the economy to grow. Guinigundo said that the central bank now have fewer monetary tools in active mode to influence the market, compared to six months ago, with the threat against liquidity equally diminished. “But we can always chose to keep our policy rates steady as well so we still have options," he added. Tetangco and Guinigundo pointed out that the peso lost significant value in recent days as the fiscal woes of Greece spilled beyond the European Union with bankers reacting by holding on to their financial resources, causing currencies – including the Philippine peso – to sag against the US dollar. Both central bankers, however, are confident the disruption of foreign funds flowing into the Philippines is a temporary situation on the financial front. “Once a credible fiscal plan [for Greece] is announced, then the market will start to exhibit less volatility and start to stabilize, Tetangco said. He sees the risks of an overspill mainly in trade, because the EU is an important market that accounts for some 20 to 30 percent of China’s exports. “I think if all of the European governments are trying to come up with reforms to address the spread of the problem, and if they are successful, then the impact on the other countries, including Asian countries, would be much less." Tetangco said. "It all depends on how the European governments would be able to address the situation in Europe right now. They already came up with a package and the International Monetary Fund has also made its commitment. So they are moving towards finding a solution," Tetangco said. —VS, GMANews.TV