The Bangko Sentral ng Pilipinas (BSP) said the certainty of another cut in the United States Federal Reserve’s massive bond-buying stimulus program as announced should calm the Philippine financial markets. It added that it would factor the Fed’s move into its next policy decision.
Analysts, however, warned that the US move is likely to trigger the Philippine central bank to raise the reserve requirement ratio for banks again while keeping the key policy rates unchanged.
In a text message to reporters on Thursday, BSP Governor Amando Tetangco Jr. said the tapering of the US Fed’s latest quantitative easing has confirmed market expectations.
“The Fed action was largely as the market had expected, as was the language on keeping the target rate ‘below levels it views as normal in the long run’ for some time,” Tetangco said.
The US announcement substantiates some analysts’ view that the Fed is now on “auto pilot,” he said.
“That said, it would be interesting to see the actual minutes where these are made known. For now, this should keep the domestic financial markets fairly stable. We will take this into consideration during our own policy meeting next week,” he added.
Jun Neri, Bank of the Philippine Islands chief economist, predicts another hike in banks’ reserve requirement ratio.
“We expect the BSP to hike the reserve requirement rate again in its May 8 meeting but [it will]refrain from hiking either the policy rate or the SDA [special deposit account]rate to save on interest expenses,” Neri said.
He added that it is likely that the BSP’s key policy rate hike will come this year as a “pre-emptive” move to increase the chances of attaining its lower 2015 inflation target of 2 percent to 4 percent.
After a two-day meeting in Washington, the Fed announced that it would continue cutting its monthly purchases of US Treasuries and mortgage-backed securities by a further $10 billion to $45 billion from an original $85 billion a month, the fourth reduction by the US central bank in its monthly quantitative easing program.
The Monetary Board of the BSP is scheduled to meet on May 8 – its third meeting for the year. During its February 3 and March 27 monetary policy meetings, the central bank decided to keep its policy interest rates steady based on its assessment that the future inflation path was likely to stay within the targets for 2014 and 2015.
At the same time, the Monetary Board decided to increase the reserve requirement by one percentage point effective on April 11 to help guard against potential risks to financial stability that could arise from the recent rapid growth in domestic liquidity.