Worries about the euro zone’s festering debt crisis and US economic weakness have sparked a heavy sell-off in assets such as stocks, commodities and emerging market currencies such as the Philippine peso.

Growing risk aversion means the central bank should pursue further reforms to ensure the financial system would be better prepared to weather global uncertainties, officials of the Bangko Sentral ng Pilipinas (BSP) said.

The comments echoed a call by China on Friday for countries around the world to step up coordination to tackle mounting risks from debt problems in the US and Europe.

“The problem has become global, therefore the solution should also be global. Coordination among central banks and other regulators is very critical,” Diwa Guinigundo, BSP deputy governor said.

“Aside from information exchange, some coordination in policy intent will be useful to ensure that the impact of any policy initiative is most optimum,” he said.

Earlier in the day, data showed the Philippines’ annual inflation rate steadied in July, giving the central bank more

leeway to pause in its policy tightening campaign amid growing fears of another global recession. 

Annual inflation in July was 4.6 percent, the same as in June and lower than market forecasts of 4.9 percent. 

The central bank said it was prepared to undertake additional policy measures if warranted.

Last week, the central bank raised banks’ required reserves by 1 percentage point for the second time in as many meetings as it kept its benchmark overnight interest rate steady at a two-year high of 4.5 percent. 

“Definitely the uncertainties did not seem to have eased,” Guinigundo said.

“The BSP will always be in the market to ensure that the volatility is minimized or moderated.

“We need to continue pursuing reforms and self-fortification so that we will always be prepared,” he said.

Market views are now mixed on whether the central bank will resume its rate hike campaign later this year, as had been expected before this week’s sell-off.

Annual inflation in July was 4.6 percent under the 2000 base year series, steady from June and lower than a median

estimate of 4.9 percent in a Reuters poll.

The rate was well within the central bank’s forecast range of 4.3 percent to 5.2 percent for the month.

Based on the new data series using 2006 prices which will later become the reporting standard, inflation in July was 5.1 percent, easier from 5.2 percent in June. 

“The inflation report today gives more leeway for BSP to stay put for longer,” Vincent Tsui, economist at Standard Chartered Bank in Hong Kong.

“When the external environment improves, commodity prices will see a rebound, and we maintain our forecast that BSP will resume hiking in Q4,” he said.

Radhika Rao, economist at Forecast Pte in Singapore, said she expects the central bank to raise rates by another 25 basis points later this year, but added there was a chance authorities would not touch the policy rate until year-end and use non-policy measures to tackle any major changes in liquidity conditions.

Tetangco said on Monday the central bank has enough tools to deal with a potential increase in domestic liquidity, fueled by strong capital inflows as investors seek higher yields in faster growing emerging market economies like the Philippines.

Policymakers have said the inflation rate could exceed 5 percent in the fourth quarter before tapering off, and that they were ready to take action, if needed, to fight inflation.