##ity conditions are adequate and credit growth is robust. together, these two support healthy economic growth. ladies and gentlemen, these statements are undeniable. and these developments have led to the country achieving investment grade rating from two of the three major western credit rating agencies. in fact, the organizers of this event have built this forum on the theme of the country ’ s investment grade rating, which i will come to shortly. so, then you might ask, if it is all good, then why have the domestic financial markets sold off in the last few days? to answer this, let ’ s now move to the second step : anticipate the unknowns. our financial markets have been affected by the recent global developments because financial markets have become increasingly integrated. we pushed hard to achieve investment grade rating precisely because, in a globally integrated market, the independent rating of a credit rating agency helps market participants distinguish between good and better investment destinations. add to this, the combination of the accommodative monetary policy in the advanced economies, on one hand, and the good growth prospects in emerging market economies ( such as the philippines ), on the other. the confluence of these elements has indeed made the philippines a magnet for capital flows, i. e., portfolio flows that are looking for better yields. still, the good story behind the investment grade rating and strong capital flows begs the question, why the sell off? i ’ m afraid given our collective years of market experience, you would agree with me when i say that there are three specific risks an integrated financial market faces – capital flow reversal, market overshooting, and the loss of market confidence. if we are able to scope these risks, our problems would possibly go away. to scope these risks, however, both policy makers and market participants must measure two things – 1 ) speed and 2 ) magnitude. we must find answers to the questions of – by how much and how fast could capital flow reverse? by how much and in which direction will market overshoot? by how much and in what form would loss of market confidence manifest itself? the problems would go away even faster, if there is a convergence in the assessments of policy makers and the market in all of these. but these variables are not easily quantifiable with any measure of accuracy. to address this problem, the bsp has therefore had to constantly sharpen our market surveillance skills, enhance our forecasting models, and widen the breadth of our regional cooperation efforts

. i hope the market is able to appreciate this fact and see that we have achieved some amount of success in all these fronts. which brings me to the third step – act on the known, but be mindful of the unknown. this is a policy that the bsp adheres to with diligence and circumspection. our recent monetary policy actions, responses in the form of macroprudential measures and refinements to the manner in which we conduct our open market operations are examples of this. ladies and gentlemen, the philippines, in part through the efforts of the bsp, has sufficient cushions to ride out the recent bout of financial market volatility and take advantage of the opportunities that would present themselves as the fed - forecasted us economic growth indeed gains more solid traction. liquidity – both peso and dollar – remains ample and the bis central bankers ’ speeches bsp is prepared to ensure that the financial system remains adequately lubricated during this period of global normalization. i know that was quite a mouthful and from the perspective of treasury players, perhaps too broad and macro. i know that what the market really wants to hear from the bsp governor is this – where are the exchange and interest rates headed? i don ’ t want to suffer the same fate as bernanke had. so i will make it clear – my message today is this : the philippine fundamentals are solid, and we have built up safeguards to ride out the volatilities. therefore, at the moment, there is no need for us to deviate from our current policy stance. the exchange rate will continue to be market - determined, and the bsp will maintain its strategic market presence to avoid excesses in volatilities and to provide appropriate market guidance. monetary policy will continue to be conducted in consideration of the inflation outlook and mindful of any financial stability pressures, which in our current assessment are benign. the challenge for all of us is preparedness. the bsp will continue to work towards an operating environment that would help businesses and consumers plan for the medium and long - term. in the near - term, however, we look to you in the market to help mitigate market volatilities so that those whom we both serve could cross through, get past these volatilities and in the end reach their ultimate goals of a better life ahead. maraming salamat. bis central bankers ’ speeches