The Bangko Sentral ng Pilipinas (BSP) said that there is no need to “tweak” its policy rates in order to address short-term financial market volatility in emerging markets economies (EMEs) like the Philippines.
“The way we see it, the current volatility falling from the Fed action is in the financial markets in EMEs,” BSP Governor Amando Tetangco Jr. said in an e-mail to reporters over the weekend.
Tetangco was referring to the United States Federal Reserve’s decision to taper its bond-buying program by another $10 billion, to $65 billion a month beginning in February on the account of continued confidence in the US economic recovery.
The Fed agreed to a second tapering, following on a December 18 decision to cut its monthly asset purchases to $75 billion a month in January from an original $85 billion a month.
Its latest move has weakened the Philippine financial market. The Philippine Stock Exchange index (PSEi) registered a general decline of 0.47 percent, or 28.65 points compared to the previous day’s trade, while the peso weakened to P45.32 to a dollar on Thursday, shedding 11.5 centavos compared to the previous day’s close of P45.205 to a dollar.
“As in the past, the Fed’s moves would only be one of a number of factors we consider in our overall analysis. Our primary focus for any policy adjustments remains the outlook on domestic inflation over the policy horizon,” Tetangco added.
The BSP governor also said that policy rate changes are not necessarily the most appropriate response at this time, adding that “tweaking” policy rates to address short-term financial market volatility could likely create unintended consequences and heighten volatility even more.
“That said, we see the Fed move as affirmation that growth in the US is gaining traction. So, this should be, over medium/long-term, positive for our own growth story,” he said.
The BSP has kept its key policy rates since October 2012, wherein it reduced the interest rate for the reverse repurchase facility from 3.75 percent to 3.5 percent, while overnight lending or repurchase facility was retained at 5.5 percent. Reserve requirement ratios were kept steady as well.