BSP stands guard as Fed keeps marts guessing

CONTINUED uncertainty over the timing of the Federal Reserve’s first interest rate hike since 2008 will likely stoke volatility in financial markets but monetary policy settings should be appropriate for now, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said yesterday.

“The domestic financial markets will continue to look for signals of when the Fed would begin lift-off,” Mr. Tetangco told reporters in a text message.

His remarks came in the wake of the US Federal Reserve’s policy statement that acknowledged weakness in some sectors of the economy — a signal analysts and markets took to mean it will not be ready to raise interest rates until at least September from June, as initially expected.

“So during this time when data seem to suggest that the Fed has room to delay 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,” Mr. Tetangco explained.

The policy- making Federal Open Market Committee ( FOMC) had noted that “[ t] he pace of job gains moderated and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households’ real incomes rose strongly,

partly reflecting earlier declines in energy prices, and consumer sentiment remains high.”

“Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee’s longer- run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports.”

Yesterday saw the peso slide to P44.52 against the dollar — its weakest level in two weeks, while the Philippine Stock Exchange index fell to 7,714.82 — its lowest point since Feb. 12’s 7,714.59.

Mr. Tetangco, however, said current monetary policy settings should be appropriate for the time being. “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.”

The BSP on March 26 kept monetary policy steady for the fourth time in a row, with overnight borrowing and lending rates particularly at 4.0% and 6.0%, respectively. Monetary authorities will meet on May 14 for their third policy review this year. —