00:00Has anything changed at all for you?
00:02I mean, we have a lot of speakers, policymakers saying,
00:04it's too early, let's adopt a wait-and-see attitude.
00:07Has things changed for you at the Philippines?
00:09The main change is the new risks that we're facing.
00:13We had cut our policy rate in February 11th,
00:17but since the end of February, as you know,
00:21things have changed quite a bit.
00:23The first risk is the risk to inflation.
00:27The good news is, for now, inflation is under control.
00:31We're at 2.4%.
00:33The sweet spot for us is 3%.
00:37Now, with oil prices going up about 8% since the start of the conflict,
00:44and then the dollar getting stronger by about 2%.
00:49In peso terms, the price of oil is 10% higher.
00:5610% is still very manageable.
01:00If it goes up 50%,
01:05then that's going to be something we have to deal with more strongly.
01:11Is there a threshold?
01:12Oil at $100 a barrel, perhaps?
01:14That's actually the threshold.
01:17That price of oil begins to have effects on the prices of many commodities,
01:26and that tends to be something we have to worry about when it comes to inflation.
01:31What would $100 oil mean for GDP and inflation?
01:35Could you give us the calculations?
01:37The main effect would still be inflation.
01:40And unless we control it somehow, it's a supply shock,
01:45which means we don't really have the major tools to control it.
01:50But it's possible that $100 a barrel,
01:54then we will begin to breach what we call our tolerance range.
01:59We breach 4%,
02:02and then we have to do something with monetary policy.
02:06You talked about how it is a 10% increase in peso terms when it comes to prices.
02:13That is still 10% more input costs.
02:16Do you see that playing out in terms of investor sentiment,
02:21in terms of consumption, in terms of company spending?
02:25A little bit, a little bit.
02:29It's still something we can manage.
02:33It's when the price of oil begins to affect prices of many other things,
02:39then we have to do something on the demand side
02:42to compensate for what is really a supply shock.
02:45GDP is pretty leg-luster at about 3%.
02:48I mean, some say 3% isn't so bad,
02:50but in a region like Southeast Asia and in a country where it should be perhaps growing at 7%, 8%.
02:57How do you view?
02:59Well, in the fourth quarter, 3%,
03:01which is respectable, actually, compared to the rest of the globe.
03:06But compared to our potential, it's something we could do better on.
03:16Our potential is more like 5.5%, 6%.
03:19And part of that is a loss of confidence.
03:23It affects investment, it affects consumption.
03:27And I think we find ourselves in a vicious circle in which lack of confidence affects growth
03:34and low growth affects confidence.
03:37So we're trying to get out of that.
03:38That's why we reduced the policy rate in February.
03:43Is there reason to think you may reduce the policy rate again if oil prices continue to surge?
03:51Or might you have to tighten on the back of that?
03:54Yes, exactly. We might have to tighten.
03:56So, but you're in a rock and a hard place.
03:59Yes, yes.
04:01What the data says.
04:03So if oil prices rise sharply and persistently, then we have work to do.
04:13We know that for the BSP, your mandate is actually price stability.
04:16Yes, yes.
04:17Is there any, perhaps, room for the Senate Bank to help boost growth, given where growth is right now?
04:26Yes, and we've used that room.
04:29There's much less room now.
04:30So we're hoping we don't have to tighten in the face of higher inflation.
04:38And, of course, Governor, on the back of surging oil, we're also seeing a surge in the U.S. dollar
04:45as investors gravitate towards traditional havens.
04:50That's right.
04:50That's caused the weakness in Southeast Asian currencies, including the Philippine Peso.
04:55Including the Peso, yes.
04:56How much appetite is there for the BSP to intervene?
05:00Not a lot.
05:02We usually intervene when we're worried about something we call the pass-through.
05:08The price of oil combined due to the exchange rate leads to inflation.
05:14Then we intervene.
05:15We intervene by trying to dampen the swing in the peso.
05:21But otherwise, we let market forces decide the exchange rate.
05:26Is there a level that will prompt you to intervene again?
05:30There is a level that will be based on a lot of calculations.
05:35So that level changes depending on the data.
05:39And so, yes, there would be a level.
05:42What are these calculations?
05:44Well, the calculations involve the other things that are going on, investment, the whole economy.
05:50So it's still data-driven.
05:54Given the uncertainties and the risks in the market right now,
05:59I'm just wondering if you're seeing an outflow of capital from the Philippines.
06:02Not really.
06:03Not really.
06:04In fact, our banking system remains very strong.
06:09They have a lot of liquidity.
06:14They're flush with liquidity.
06:15They have very strong capital buffers.
06:17And they're contributing to growth.
06:19And their lending has been going up, which is a good thing, which is reassuring for us.
06:27But might the crisis in Iran prompt them to perhaps, you know, hold back on lending?
06:34Or might they allocate more buffers, so to speak?
06:39Yes.
06:39We might require more buffers.
06:41But might is the important word.
06:43It depends on what else happens.
06:47What is being done right now to boost the economy and perhaps boost consumer confidence?
06:55The part of the slowdown is an effort to discipline government spending, which is a good thing.
07:04I think there will be a catch-up process spending with the catch-up by the second quarter.
07:11And then that will boost growth.
07:13With growth, confidence comes back.
07:16And I hope it builds on itself.
07:20And then we're back to potential.
07:24If the situation in Iran does not escalate from here, what are your projections for the, in terms of your
07:32monetary policy moves?
07:34Our projections are to stay where we are.
07:38If the risks don't materialize, then we're in a place where we want to be.
07:44And so the worry is the risks that may happen or may not happen.
07:50Governor, quite a few countries are taking precautionary measures.
07:55In fact, Sweden has come out to say it wants its people to hold cash.
07:58Yes, yes.
07:59Enough for one week.
08:01Is that something that the Philippines might consider?
08:04We're not facing the same situation.
08:06Sweden, as you know, is highly digitalized.
08:09Everybody uses digital means of payment.
08:12In the Philippines, we're not in a similar situation.
08:16We still use a lot of cash.
08:18And we have cash buffers in the central banks.
08:21So we're not facing the same dilemma.
08:24But we would be ready if it comes to that.
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