Financial regulators led by the Bangko Sentral ng Pilipinas (BSP) said the current state of the economy is strong but sees a need in building “system resilience” amid global inflation, high interest rates and exchange rate pressures.

BSP Governor Felipe M. Medalla, who is also the chairperson of the Financial Stability Coordination Council (FSCC), said the country’s strong growth and the improving employment figures are encouraging signs of recovery post-pandemic, but the FSCC is also preparing for more challenges that are coming in 2023.

“The supply and distribution of key commodities such as oil and food are still not where they were pre-pandemic. These bottlenecks would keep consumer prices high,” said Medalla on Tuesday, Jan. 10, during the press briefing where the FSCC released the 2022 Financial Stability Report (FSR).

Medalla said the policy response of raising interest rates “will eventually affect the demand side of economic activity (and how) these changing demand and supply patterns manifest in 2023 at the global stage remains to be seen.”

The FSR centered its latest report on the importance of building the system’s resilience in a “fast-changing market conditions (that are in a) volatile, uncertain, complex, and ambiguous (VUCA) environment.”

The FSR highlighted the interlinkages across commodities and across jurisdictions, the macroeconomic issues that have an impact on financial markets and how the changes in the financial market can also affect the macroeconomy. The FSR also talked about how these global developments are likely to impact the Philippines.

Medalla said that “the current policy issues are systemic because of the interlinked cause-and-effect consequences they create.” He also noted that this is the reason why systemic risk analysis “is particularly challenging.”

“We need to scope the key connections among stakeholders, understand their interlinked behaviors, and only then assess how the economy is affected,” he said.

He also said that “there is a lot of work done on granular data and newer methods of analysis that goes on behind the scenes. And all that is happening so that we minimize surprises in risks while we all live in VUCA world.”

The FSCC is composed of the BSP, Philippine Deposit Insurance Corp., Securities and Exchange Commission, the Department of Finance and the Insurance Commission.

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.