Second, movements in economic prices, e.g., exchange and interest rates, could result from further risk aversion against emerging markets, including the Philippines. The fourth challenge for the Bangko Sentral is a possible resurgence in domestic liquidity from sustained strong capital inflows on account of our favorable macroeconomic performance.
While domestic liquidity growth has declined to more manageable levels after our policy action in May, we still foresee strong foreign exchange inflows in 2008. Since this may threaten our inflation target, the Bangko Sentral will need to continue to monitor this and ensure that the liquidity level is consistent with the inflation objective. At first blush, these challenges may seem formidable.