• ECB rate cut favorable to Asia, PH


    • Higher liquidity may help Asia central banks build reserves

    • Credit-fueled growth can continue uninterrupted

    • Higher yielding Asian markets to become more attractive

    • Impact on currencies different; govt responses will vary

    The European Central Bank’s (ECB) decision to cut its interest rates to record lows is expected to be favorable for emerging Asian countries like the Philippines as it creates a more accommodative global liquidity condition.

    The ECB, at its June 5 meeting cut its interest rate for its overnight deposit facility by 10 basis points, pushing the interest paid on banks’ deposits of excess funds into negative territory at –0.10 percent.

    In addition, the interest rate on the main refinancing operation of the Eurosystem was also cut by 10 basis points to an all-time low of 0.15 percent from 0.25 percent.

    “From a broader perspective, the ECB’s latest easing measures are important. For one, they underline our call that global liquidity should remain highly accommodative for emerging markets and Asia in particular for the foreseeable future,” Frederic Neumann, co-head of Asian Economics Research of global bank HSBC, said in a commentary released on Friday.

    The economist noted that flusher liquidity conditions from the ECB and the potential for some capital to flow from the Eurozone to Asia would be an opportunity for central banks to build their reserves.

    “For emerging Asia, this is good news, of sorts. It means that credit-fuelled growth can continue largely uninterrupted,” he added.

    Higher inflation, which is one of the anticipated effects of the ECB action, typically reduces bond yields, making higher-yielding markets like Asia more attractive.

    The Bangko Sentral ng Pilipinas (BSP) said that while the ECB actions are favorable to liquidity conditions, it is also important to closely monitor the recent development to prevent any financial stability pressures it may create.

    “This is a clear sign of asynchronicity in the stance of monetary policies of the advanced countries. In a way, this should be favorable from a global liquidity point of view,” BSP Governor Amando Tetangco Jr. said in a text message to reporters late Thursday.

    Tetangco, however, noted that the impact of the ECB action on individual economies and currencies is likely going to be different and thus, the needed policy responses may also vary.

    The BSP governor stressed that the Philippines’ monetary authority will carefully consider this latest external development in its next policy-setting meeting.

    “In the meantime, we will continue to closely watch out for shifts in global investor sentiment and monitor movements in our own financial markets, and any financial stability pressures that these may bring about,” he said.

    The next policy meeting of the Monetary Board is scheduled for June 19.


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