The Bangko Sentral ng Pilipinas (BSP) is expecting volatility in the financial markets as the United States Federal Reserve decided to taper its stimulus program.
“Coming to this meeting, several Fed officials had already indicated an openness to a taper soon, and some market participants have indeed called for, at best, a $10-billion reduction in asset purchases . . .,” BSP Governor Amando Tetangco Jr. said in a text massage to reporters on Thursday.
The US Fed announced that it would start to reduce its $85-billion a month quantitative easing (QE) program to $75 billion.
Beginning January next year, the Federal Open Market Committee (FOMC) would cut its monthly long-term Treasury on purchases to $40 billion and mortgage-backed securities to $35 billion a month, for a $10-billion total reduction in the US bond-buying program.
The QE program, which was meant to stimulate the US economy has fueled an investment splurge in emerging Asia over the past year.
“So far, market has reacted as expected . . . This step towards normalization is welcome, as this means the US economy is growing with some traction setting in, which in turn is positive for trade in emerging market economies,” Tetangco added.
The BSP governor also noted that there may be some volatility in the financial markets in the near term, but not in the order of what happened in May/June this year.
The Fed started to announce the possible tapering of its stimulus program in May, which sparked financial market volatility, resulting to weaker Asian currencies including the peso.
Meanwhile, Tetangco assured the public that Philippine fundamentals “remain solid and policy settings continue to be appropriate,” noting that the monetary authority stands ready to deploy necessary policies to counter the negative impact of Fed tapering in the country’s financial markets.
“The BSP is watching developments if there is any need to fine tune policy,” he said.