BSP ready to contain volatility – Tetangco
Easing concerns over the US Federal Reserve’s policy stance could lead to calmer global markets, but the Bangko Sentral ng Pilipinas (BSP) remains watchful of any need to address undue volatility.
“The Fed [no longer]seemed to be as concerned as it was last meeting [about]. . . the impact of external developments on their own domestic dynamics, as well as the impact of their policy actions on global financial markets,” central bank Governor Amando Tetangco Jr., told reporters on Thursday.
“That said, as we are essentially a price taker in the scheme of things, we will continue to monitor domestic market reactions, to see if any action is needed on our part to contain undue market volatilities,” he added.
The US central bank on Wednesday voted to leave its benchmark interest rate unchanged at near zero, noting an improved outlook for the domestic economy. It also downplayed previous concerns about a global slowdown, raising the possibility of a rate hike by December instead of early next year.
With only one meeting left this year, analysts expect markets to be more focused on upcoming indicators, and Tetangco said that in a way, more normalcy could be expected.
During its last policy meeting in September, the BPS’s policy-making Monetary Board kept overnight borrowing and lending rates at 4 percent and 6 percent, respectively, noting that the domestic price situation remained manageable.
“With the Fed keeping the door ajar for a rate hike in December, markets will be closely monitoring labor market data with non-farm payrolls in the coming week coming in top of mind,” said Nicholas Antonio Mapa, Bank of the Philippines Islands (BPI) associate economist.
He now expects the Fed to hike rates in December and added that the BSP could narrow its interest rate corridor ahead of a Fed policy normalization.
Research firm Capital Economics, meanwhile, continues to expect US interest rates to be raised more than the markets anticipate in 2016 and beyond.
“Nonetheless, this prospect should not be as alarming as it sounds, both because it depends on global economic and market conditions improving, and because policy elsewhere is still likely to be loosened further,” said Julian Jessop, the firm’s chief global economist said.
Capital Economics expects the Fed funds rate to be increased to no more than 2 percent in 2016, which would still be very low by past standards.
Jessop said the forecast depended on the US economy remaining strong enough for wage and price pressures to pick up, and on there not being any major adverse market reactions.
“If these conditions are not met, the Fed would surely go back on hold or even reverse course,” he added.
Jessop also noted that the research firm was relatively relaxed about the impact of a Fed tightening on emerging market equities and commodity prices.
“Indeed, both might actually benefit from the ending of uncertainty about when the Fed will start to raise rates (especially if the first hike were seen as a vote of confidence in the global economy), just as they rallied in the months after the Fed finally began to scale back its asset purchases under QE [quantitative easing]in late 2013,” he said.
“In any event, the prospects for most EMs [emerging markets]depend far more on developments in China than on whether US rates end next year at zero, or (a still-low) 2 percent,” he added.