‘Market volatility looms’ after Fed delay – BSP

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The Philippine central bank warns of some volatility in the domestic financial markets in the days ahead after the United States Federal Reserve left open its timeframe for a market-anticipated interest rate hike.

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“The domestic financial markets will continue to look for signals on when the Fed would begin a lift-off. So during this time when data seems to suggest that the Fed has room to delay its action, we can expect some volatility, as those who have positioned themselves for an early Fed hike reassess their next steps, while those who have held off, may continue to proceed with caution,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr., said in a text message to reporters on Thursday.

“On the part of the BSP, our view is that the current stance of policy remains appropriate, but we are watchful of developments, including shifts in global growth prospects, changes in global commodity prices as well as shifts in market sentiment, to see if there is need to make adjustments to policy,” Tetangco added.

Recognizing the recent run of disappointing economic data in the US, the Federal Open Market Committee after its meeting on Wednesday (Thursday in Manila) said economic activity will expand at a moderate pace, suggesting that an interest rate increase later in the year is still in play.

After more than a year pointing to mid-2015 for when it would begin raising the federal funds rate, the FOMC stopped offering its “forward guidance” and made clear it would wait for more signs of economic progress before the first rate rise in nearly nine years, Agence France-Presse reported from Washington DC.

“The decision left uncertain the path toward a slow series of rate rises that are likely to shift global markets and support the stronger dollar,” the report said.

At its own meeting on March 26, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to hold its key interest rates steady based on its assessment that the inflation environment continued to be manageable.

The BSP kept the rate for overnight borrowing, or reverse repurchase (RRP) facility at 4 percent, while that for overnight lending or repurchase facility, remained at 6 percent.

The special deposit account rate was also frozen at 2.50 percent, while the reserve requirement ratio for banks still stands at 20 percent. (See related story US Federal Reserve leaves open timing for rate rise)

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