AFTER YELLEN’S ANNOUNCEMENT

Fed rate freeze should calm markets – BSP

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The United States Federal Reserve’s decision to keep its policy interest rates steady for now until later in the year should calm global financial markets and trading partners such as the Philippines, the Bangko Sentral ng Pilipinas (BSP) governor said.

Immediately the peso gained strength in Thursday’s trade after US Fed Chair Janet Yellen announced that the Federal Open Market Committee (FOMC) reaffirmed its view that the current 0 to 0.25 percent target range for the federal funds rate “remains appropriate.”

The local currency closed at P44.95 to $1, recouping 23 centavos from Wednesday’s finish at P45.18.

“The Fed’s assessment of the US economy’s resiliency to rate hikes should be positive for trading partners, including the Philippines,” BSP Governor Amando Tetangco Jr. said in a text message to reporters on Thursday.


Adding a word of caution, Tetangco continued: “The Fed’s consistency in its message should provide some market calm, but it should also encourage the market to be watchful of developments and avoid extreme actions.” He did not elaborate.

In her announcement, Yellen said economic activity in US since April has been expanding moderately after having changed little during the first quarter as the pace of job gains picked up while the unemployment rate remained steady.

The Fed chief added that the FOMC anticipates it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to the 2 percent target over the medium term.

“We will take the Fed’s views into consideration during our policy meeting next week,” Tetangco said, referring to the monetary policy meeting of the BSP’s Monetary Board, scheduled for June 25.

Since September last year, the BSP has kept the rate for overnight borrowing, or reverse repurchase (RRP) facility at 4 percent, while the rate for overnight lending or repurchase facility has remained at 6 percent.

The special deposit account (SDA) rate was also frozen at 2.50 percent, while the reserve requirement ratio (RRR) for banks still stands at 20 percent.

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