Diokno cites need for vigilance vs. spillovers of pandemic

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said authorities are now more vigilant in ensuring that spillovers of the global health crisis will not impact on the financial market.

In a virtual briefing during the release of the report about the Macroprudential Policy Strategy Framework: The Case of the Philippines on Tuesday, Diokno said the coronavirus disease (Covid-19) pandemic brings more challenges including making sure that the financial market remains resilient.

He said unlike the 1997 Asian financial crisis and the 2008 global financial crisis, the current issue is not rooted in the financial market.

“Traditionally, our focus is underpinning the ground of the financial system so it will not adversely affect the broader economy. The challenge today, however, is the exact opposite. We want to make sure that the difficulties will not spillover from the economy to the financial market,” he said.

Diokno said the pandemic affects the financial market through several ways like risk aversion and income erosion.

“While the financial market remains strong, we have to remain vigilant for every possible spillover,” he said.

He further said the current situation is different because interest rates are now low thus, macroprudential policy needs to be different compared to the ones implemented in the past.

“We know that regulatory relief is needed to make market space really balance. Covid-19 is expected to be much more severe so we have to think this early of where the economy is so we can prepare in advance,” he added.

During the same briefing, Security and Exchange Commission (SEC) chairperson Emilio Aquino said the Financial Stability Coordination Council (FSCC), which is composed of the BSP, SEC, the Department of Finance (DOF), and the Philippine Deposit Insurance Corporation (PDIC), is “taking continuous steps to make the financial system more resilient to external shocks”, among others.

“No one would have really imagined a pandemic of this nature and an integrated global economy provided the channel of amplification,” he said.

“On the side of FSCC having this framework publicly released is our baseline. As a Council, we are working pre-emptively on a number of things, including a framework that involves a crisis due to systemic risk in the financial market,” he added.