BSP to watch market volatility after Fed rate comments


The central bank said it is closely monitoring any sharp movements in the international financial markets amid speculation about when the United States Federal Reserve would raise interest rates.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. made the comments after US Fed Chairperson Janet Yellen told the US Senate Banking Committee on Tuesday (Wednesday in Manila) that the Fed could still be patient before raising interest rates, even as she prepared the ground for an increase as early as mid-year.

“While the Fed statement gives the BSP room to keep rates steady, the recent price action shows we must be mindful that the comments could also spur more market volatility. This increase in volatility bears watching,” Tetangco said in a text message to reporters on Thursday.

He stressed that Yellen’s comments are not clear on when the Fed will raise interest rates, and show that the US central bank is continuing to favor data-dependence rather than calendar-dependence in making a decision on interest rates.

“As we saw yesterday, markets received the Fed comments as dovish and encouraging some ‘risk on’ trades. We may, therefore, see capital moving further to the long end of the US curve or to EMEs [emerging market economies],” Tetangco said.

The Fed chair told the US Senate panel that the central bank was deep in preparation for the move after keeping the rate at zero for more than six years, but also stressed that the labor market still shows cyclical weakness and inflation continues to fall.

“A high degree of policy accommodation remains appropriate,” Yellen stated.

She noted that inflation is still falling, and despite the US unemployment rate having fallen to 5.7 percent, the persistent lack of wage gains for average workers suggests the jobs market remains slack.
“We have further to go and we want to promote full recovery,” she added.


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