BSP sees risks from Fed move


“Risk on” behavior can be expected in emerging markets as the United States Federal Reserve decided to keep its strong monetary stimulus, according to the Bangko Sentral ng Pilipinas (BSP).

“The Fed’s decision prolongs the waiting game for the inevitable. In the meantime we can expect ‘risk on’ behavior in emerging markets,” BSP Governor Amando Tetangco Jr. said in a text message.

The US Fed earlier announced that it is keeping its interest rates at record low, and will continue its $85-billion-a-month quantitative easing (QE) program.

The Fed’s QE program, which fueled an investment splurge in emerging Asia over the past year, was meant to stimulate the US economy.

“The BSP will be watching market conduct closely for excessive volatilities in financial asset prices and will maintain presence in the markets as appropriate,” Tetangco added.

An earlier statement from the central bank said that it stands ready to make refinements to its existing macro prudential measures, or deploy new ones as necessary to preemptively address any potential risk of financial market imbalances.

The BSP also said that it ready to make adjustments to the stance of policy, as the inflation outlook would allow, in order to support economic growth.

After a closely watched two-day policy meeting, the Fed said on Wednesday that it would hold steady on its bond-buying program, as it awaits further signs that the US economy is strong enough to stand on its own feet.

Policymakers made no reference to the potential impact of October’s government shutdown and did not hint at future plans for the stimulus.

However, analysts noted the US Fed did not downgrade its outlook from earlier statements, and some suggested it could begin to reel in the scheme as early as December.

“While maintaining that the economy continued to expand at a moderate pace and that housing may have slowed slightly, overall the Fed noted that downside risks have diminished,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

The commentary was “slightly more optimistic than expected” and “not as doveish as many had expected,” Esiner added.

Investors have been keeping a close eye on the Fed’s plans for the stimulus since May, when it indicated it might begin cutting down its bond purchases, sending global markets tumbling.

Tapering had been expected by the end of this year but a weak set of data—including soft jobs growth—and October’s two-week government shutdown had made that highly unlikely.



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