amando m tetangco, jr : recent market developments – impact on the philippine banking and finance sector speech by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the joint membership meeting of mart, toap, aci and ihap, makati city, 3 october 2008. * * * distinguished officers and members of the money market association of the philippines ( mart ), trust officers association of the philippines ( toap ), association cambiste internationale ( aci ) philippines, the financial markets association, investment house association of the philippines ( ihap ), esteemed guests, ladies and gentlemen, good evening. thank you for inviting me to be your guest speaker at tonight ’ s joint general membership meeting. it ’ s always good to engage the prime movers of the country ’ s financial markets in an open discussion such as this. but especially during these times of great financial turmoil in major markets overseas. i would certainly welcome the questions and your comments during the open forum after my brief talk. as you are well aware, the bsp ’ s approach to supervision and reform has always been consultative. about the same time last year, if you recall, i was also your guest speaker at your general membership meeting. at that time, i spoke about the increase in global liquidity and the temptations that it introduced. i alluded to the changing nature of financial risk and how in this era of financial globalization, risks have transcended national borders. i also said that the international rules of the game are changing. ah... the time we live in is indeed interesting, isn ’ t it? the rules of the game are further evolving. this time around, there seems to be a crunch in global dollar liquidity as the us market has rapidly de - leveraged. and events are showing that the magnitude of financial risks that have crossed national borders has been beyond most market participants ’ and regulators ’ expectations. stunningly, we are witnessing rapid turnover in some of the marquee names in the global financial stage. in fact, the market developments are moving so fast that the observations that i will be sharing with you tonight are not the same as those that i would have shared with you, had i delivered my talk on tuesday as was originally scheduled. but i want to assure all of you here tonight, that my overarching message remains the same –

keep interest rates within a reasonable range around the bsp ’ s benchmark policy rates. bis central bankers ’ speeches the second challenge we see in 2016 is liquidity and financial stability. discussions on financial stability often revolve around liquidity. where it comes from and where it goes, will determine its impact on the financial system and, ultimately, on the real sector. as we have learned from recent episodes of financial crises, too much liquidity can cause potentially dangerous asset price bubbles ; too little and the economy could contract. the ideal is when liquidity is adequate and it is channeled toward productive uses and opportunities. indeed, we need to ensure that the liquidity that is already in the financial system is channeled effectively toward productive uses. another concern is how domestic liquidity conditions could be affected by the us fed ’ s decision to raise interest rates, by the weakening chinese growth prospects and by the heightened volatility in their financial markets. nevertheless, we have reasons to believe that the overall impact on our economy would be manageable due in large part to the “ pull factor ” of the philippines ’ strong macroeconomic fundamentals. at the end of the day, the move by the us fed to raise rates also signals a relatively more vibrant outlook for the us economy which could have positive spillover effects through revitalized trade flows. meanwhile, a more market - oriented chinese market could also have positive long - term effects on the global economy by ushering in a more sustainable growth path. it is also important to note that the bsp has policies and measures to help cushion the economy from external shocks. these include ( 1 ) upholding a market - determined exchange rate with an option to maintain its presence in the foreign exchange market to minimize volatility ; ( 2 ) keeping a comfortable level of reserves and managing them prudently ; and ( 3 ) providing access to domestic and foreign exchange liquidity through various facilities. we will also align our supervisory policies with international standards, to provide a more level playing field for our local banks. this is crucial as we prepare for the entry of more regional and international banks under the asean economic and financial integration program. indeed, we need to do much more to be competitive in the region. – we need be able to handle more complex financial transactions and instruments ; and we need to strengthen our pricing conventions and price discovery mechanisms, so that reference rates and benchmarks accurately reflect market valuation. the bsp has been consulting with industry stakeholders, other