The Philippines' new central bank governor, Nestor Espenilla, warned of the potentially "far-reaching" impact of advanced economies' exits from their accommodative monetary policies, on his first day as the head of the bank. Espenilla, who previously headed banking supervision in the Philippines, began his six-year term as President Rodrigo Duterte's administration prepares for a six-year, $180 billion spending spree on infrastructure, in a bid to sustain galloping growth.
While the country's growth prospects remain positive, Espenilla said the central bank needs to be mindful of potential vulnerabilities to ensure the economy remains on solid ground. "We have to be prepared for the seemingly imminent wind-down of ultra-easy monetary policies in advanced economies," said Espenilla, who took over from the well-respected Amando Tetangco after a 12-year tenure. The US Federal Reserve has been raising rates and is looking to start reducing its massive balance sheet. At the same time the European Central Bank and even the Bank of Japan are cautiously looking to the end of monetary easing.
Global markets took fright at the Federal Reserve's first hint that it might taper its monetary expansion policy in 2013. That so-called taper tantrum sent bond yields up sharply and sowed turmoil in world markets from Rio de Janeiro to Jakarta. "We need to be mindful of such events and their potentially far-reaching consequences since these could undermine our economic performance and disrupt our carefully-laid plans," Espenilla said in a speech.
The Philippines, which has enjoyed 73 quarters of uninterrupted growth, continues to enjoy manageable inflation, that has allowed policymakers to leave policy settings unchanged since a 25 basis-point hike in rates in September 2014. Espenilla said the central bank would continue to "fine-tune" its monetary policy to make it "more market-oriented", which would entail a constant review of policy tools, including banks' reserve requirements and the interest rate corridor.