January 25th, 2022
Amid a looming rate hike decision by the US Federal Reserve tomorrow, House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) is urging the country’s economic managers to ensure that the prices of basic commodities remain low to ensure that the Philippines will not be forced to prematurely retreat from its low-interest monetary policy.
“We should already take for granted that the Fed will raise rates. Even if they don’t do so tomorrow, they will probably do it several times over 2022, most likely thrice or four times,” Salceda said.
“It threatens the recovery of countries like the Philippines, which are net beneficiaries of US capital. Our close economic partners, such as Japan, will also probably be affected,” Salceda said.
“The countervailing or balancing option for us is to keep our policy rates low. I think that is the predisposition of Governor Diokno. But he and the Monetary Board will be forced to make adjustments if food prices spiral out of control this year.”
“So, the best way to ensure that we have a wide range of options, and are not backed into a corner by the developments in the US, is that we keep food prices low. That means winning the fight against ASF, on meat. On fish, we have to boost domestic supply on top of the DA’s plans to import. We also have to mind the prices of fertilizers and other basic crop inputs,” Salceda added.
Studies show that in response to a U.S. monetary tightening, GDP in foreign economies drops about as much as it does in the United States, with a larger decline in emerging economies like the Philippines than in advanced economies.
“I think we won’t be as affected as, say, Vietnam or Cambodia. The US is just one of many partners we have and is not even our biggest investor or trading partner anymore. Still, we will feel the pinch of these rate adjustments,” Salceda added.
Some sectors could be vulnerable
Salceda warned of consequences particularly in the garments sector, whose major export market is the United States.
“Consumer spending in the US tends to suffer as a result of an interest hike by the Fed. When that happens, garments will take the first hit among our export industries. Other sectors that may see slower growth are electronics and BPO, but probably to a lesser extent. The continued shift to digitalization may even balance out the effect of the rate hike completely,” Salceda said.
It is estimated that there are 600,000 Filipinos employed in the garments export sector.
“I am quite worried because 49,000 workers in Albay lost their jobs due to the Global Financial Crisis in 2008. Thus in the Econ Stimulus Plan I proposed to PGMA was an income replacement and temporary employment program which was to become TUPAD. We may need to intensify this effort among affected or displaced workers in these sectors. I expect Albay to need some help, given our high concentration of small exporters,” Salceda added.
“The garments sector is really the most vulnerable sector here. We need to discuss anticipatory measures. I will ask the DTI for their plan in this regard,” Salceda added.
“We could also see lower demand in handicrafts, toys, even fruits and vegetables, and seafood, which are our biggest exports among basic consumer items to the US,” Salceda warned
Salceda also hopes that the Financial Stability Coordinating Committee could explain to the House economic recovery cluster its plans to mitigate the impact of the rate hike, particularly on the banking sector.
“History and empirical data shows that the stronger the banking system, the weaker the effects are of a US rate hike on a foreign economy like ours. So, keeping the banking sector strong is key.” Salceda said. #