financial storm. current situation how should we respond to the challenges before us? the first step is to recognize where we stand at the moment. thus, allow me to share with you some insights on the impact of the global financial crisis on the philippine economy. as we all know, 2008 has turned out to be one of the most challenging years we ’ ve had, as we coped with two major challenges. in the first half of the year, we were confronted by surging prices of oil and non - oil commodities which caused inflation to accelerate globally. in the second half, we faced the international financial turmoil that was ignited by the u. s. subprime mortgage problem and, which subsequently, turned into a global financial meltdown. while the philippine economy has remained generally resilient and has been described by a ratings executives as an “ island of calm ”, it does not mean that we are totally immune to adverse global developments. as in most other countries, our currency has generally weakened, credit spreads have widened, and the stock market has fallen. some economists believe that 2009 could even be tougher than 2008 once the impact on the real economy is felt. nevertheless, it is not all gloom and doom for us. the philippines has buffers that can help us through the current global economic crisis. our output growth continues to be demand - driven, led by consumption as well as capital spending. moreover, the country ’ s gdp growth for the first three quarters of 2008 is still within the country ’ s long - term growth trend. compared against our neighbors, this growth performance is quite respectable. meanwhile, easing prices of oil and other non - oil commodities in the world market and moderating inflation expectations have reduced inflation pressures and protected the people ’ s purchasing power. easing inflation pressures provide flexibility for the bsp to formulate policies supportive of the real economy while keeping an eye on the risks to stable prices. recent adjustments in fiscal targets also provide some policy space to support growth. the postponement of the balanced - budget objective to 2010 should provide additional resources to government to boost infrastructure spending and enhance social safety nets that will protect the vulnerable segments of our population. the country ’ s stable external payments position also provides additional buffer against the global economic slowdown. the country ’ s balance of payments, although significantly lower than in 2007, has remained in surplus in 2008 with our gross international reserves at an all - time high. finally, the banking system remains sound due to continuing policy and

. in fact, when you look at the rise of our balance sheet, it is largely because we purchased foreign exchange. the only time we purchased philippine government bonds was because of covid. fed actions : always relevant but less of a concern in policy - making of course, we are affected by what happens with the fed [ united states ( us ) federal reserve ]. but, in general, our inflation policy is largely driven by philippine inflation. what was unique about this year is that the us policy rate changes were so large - four 75 basis points ( bps ) [ hikes ] in a row - to the point where the philippine policy rate became too close to the us policy rate. and, as you know, since the dollar is the global currency, people would prefer the dollar to the peso if the policy rates are the same. we are now at that stage where we are watching that [ differential ]. we want to make sure that our policy rate is not lower and should be around 1. 0 to 1. 25 percentage points higher than the fed's. that is what the markets are saying. and, as shown in the next slide, when you have very, very narrow differentials between the fed policy rate and ours, you have a weak peso. as you can see, it [ the peso ] has appreciated lately. taking decisive monetary action and one of the reasons [ behind the appreciation ] is we have acted very aggressively. we increased the policy rate from 200 bps to 425 bps, more than any central bank in asia. the only central bank that comes close is south korea. now, we are probably near the end [ of our tightening cycle ]. we are probably [ considering ] pausing at the next meeting because the [ m - o - m ] inflation prints are very good. if april turns out to be another very low inflation month - so, that is three good points in a row - then we are in a position to pause. 3 / 4 bis - central bankers'speeches how the central bank creates the conditions conducive to growth and supports economic development let me wrap up and say, we [ at the central bank ] use all our powers, and we have enough of them to make sure that we support our three pillars. this has been very good for us but also quite good for the philippine government itself. and we are very, very fortunate that every finance secretary that the philippines has ever had - that i can remember