Philippines asset bubble risks under control: Fin Sec

Cesar Purisima, Philippines secretary of finance
Victor J. Blue | Bloomberg | Getty Images
Cesar Purisima, Philippines secretary of finance

Record low interest rates in the Philippines have raised concerns over potential asset bubbles in Southeast Asia's fastest growing economy, however the country's finance secretary said these risks are under control.

"The good thing about the Philippines is that we've been through the Asian financial crisis – we learned painful lessons – so we've been very vigilant," Finance Secretary Cesar Purisima told CNBC on the sidelines of the World Economic Forum in Manila, referring to the 1997 financial crisis in East Asia saw the country's currency, stock market and economic growth decline sharply.

"The central bank, for example, has been watching the natural potential suspect – the real estate market. The regulators are on top of the ball there," he said.

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Earlier this week, the Bangko Sentral ng Pilipinas (BSP) asked banks to assess how interest rate changes affect the real estate sector and banks' balance sheets as part of planned stress tests on the sector.

BSP governor Amando Tetangco said if the impact is significant, banks concerned may be asked to submit plans on how to address the impact on balance sheets.

Banks' real estate sector exposure has been on the rise as the low interest rate environment and robust remittances fuel property demand. Lenders' exposure stood at 1.006 trillion pesos ($23.06 billion) at the end of 2013, up 7.1 percent from the end of third quarter last year.

'Monetary policy still right'

When asked whether the central bank should hike rates soon, Purisima – a member of the BSP's policy-setting board– said, "The time frame is what the market dictates to us. The central bank is market driven."

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Right now, the market is telling is us our monetary policy is still right, he added.

While the BSP has raised banks' reserve requirements twice this year, it has kept its key interest rate—the overnight borrowing rate—at a record low 3.5 percent since October 2012.

This is in contrast to some of its regional peers such as Bank Indonesia, which raised interest rates by a total 175 basis points between June and November last year, pushing its benchmark rate to 7.5 percent.