THE Philippines will continue to have a low interest rate environment for as long as its macroeconomic fundamentals are kept intact, Finance Undersecretary Gil Beltran said Friday.
Maintaining good macroeconomic fundamentals, according to the Economic Bulletin submitted to Finance Secretary Carlos Dominguez III, is the best way to keep the local interest rates down as the US Federal Reserve raises its key policy rate.
Beltran said the Duterte administration had the capacity to dampen the effects of the impending normalization of US interest rates. He said the Philippines enjoyed sound fiscal and monetary policies as the government’s fiscal deficit was also kept within manageable limits.
Beltran said that the Philippines has successive balance-of-payments surpluses, a comfortable debt ratio and reduced financial risks to the economy.
The US Fed on Dec. 4 raised its benchmark interest rate for the first time in a year and the second since the global financial crisis in 2008, signaling rates may also continue to rise faster than expected in 2017.
Emerging markets like the Philippines are now bracing for the impact of a quick rate increase by the US Fed as yields on government IOUs would likely rise as investors seek higher risk premiums.
But based on the Finance data, the average primary nominal bond rate had slightly dropped ahead of the expected US rate increase from 3.96 percent in 2015 to 3.86 percent in 2016.
“The reversal of US QE (quantitative easing) policies will push up the country’s real borrowing costs, but with improved fundamentals, the rise will be dampened,” Beltran said in his latest report to Dominguez.
He also noted that the rate of increase in consumer prices had remained low as average inflation rate stood at only 1.7 percent as of November 2016. Latest data from the government on Thursday showed the full-year 2016 inflation averaged at 1.8 percent, or way below the 2 percent to 4 percent target range for the year.
Beltran said the country’s real Treasury Bond rate (10-year term) also fell by 3.94 percentage points from 4.61 percent to 0.67 percent between 2000 and 2016 because of improved macroeconomic fundamentals.
The country’s gross domestic product has expanded by above 6 percent during the period, while inflation dipped to an average 3.4 percent and the national government’s debt ratio fell to 43 percent as of October 2016.
“This was attained through fiscal strengthening with the passage of the VAT [value-added tax] reform law in 2006, debt management measures, prudent spending and appropriate monetary policy,” Beltran said.
“The credit rating agencies recognized these positive factors and gave the country an investment grade rating in 2013,” he added.
