Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla has convened the inter-agency Financial Stability Coordination Council (FSCC) as its new chairman with emphasis on protecting the country’s recovery against emerging global threats to the financial system.

The FSCC is composed of the BSP, Department of Finance, Insurance Commission, Philippine Deposit Insurance Corporation, and Securities and Exchange Commission. It is the venue for financial market authorities to identify, monitor, manage, and mitigate the build-up of systemic risks in the domestic financial sector.

The BSP said on Monday, Sept. 12, that Medalla has tasked the council to be ready as it assess and review key external challenges such as those that could impact the oil market and its effects on leverage, liquidity, the macroeconomy, and the country’s climate change initiatives.

“(Medalla) highlighted the challenging global market environment, driven by oil volatility, inflation, and rising interest rates. He noted that the task now is to best prepare for the onshore effects of the global spillovers, reassured that the country has a favorable growth momentum and strong employment numbers,” said the BSP in a statement.

In turn, the FSCC members “acknowledged that the challenges to financial stability are broad and reiterated its continuing coordinated efforts,” said the BSP.

The FSCC has identified repricing risks and developments in the oil market as the two key external challenges.

Meantime, to counter rising inflation, most central banks including the BSP across the globe adjusted their policy rates higher to temper economic activity and to tame exchange rate pressures.

The rate increases in the US and Europe have spillover effects to the rest of the world and countries such as the Philippines had to react. “Rising interest rates benefit savers and those who wish to invest in financial instruments, but this gain will be met by higher costs for borrowers, covering households, businesses, and the government. Those holding marketable assets will also experience a revaluation loss,” said BSP previously.

Since May this year, the BSP has raised the key rate by a total 175 basis points (bps) to 3.75 percent by Aug. 18 to reanchor inflation expectations and to stabilize the depreciating peso which has broken past P57 vis-à-vis the US dollar.

Medalla has already signalled to the market that the BSP is not yet done in adjusting policy rates. The market expects the Monetary Board to raise the key rate by another 50 bps on Sept. 22.

The FSCC in June released its Systemic Risk Crisis Management (SRCM) Framework to effectively manage systemic risks.

The SRCM basically defines arrangements among the FSCC members. It involves the following: the continuous surveillance of risk trends; review of infrastructures; conduct of systemic stress tests; and arrangements for communication both under normal and stressed conditions.

Malacanang’s Executive Order no. 144 signed last year, institutionalized the FSCC and gave it more teeth and power to intervene when needed to avert a financial market collapse. The FSCC was first established in 2012 and formalized in 2014.