BSP to maintain monetary policy but watch markets

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said yesterday local monetary authorities see no reason to alter the current policy stance with the decision of the US Federal Reserve to keep interest rates unchanged. While it considers current monetary stance as appropriate, they see a need to keep a close watch on the markets.

The BSP will hold its own policy meeting next Thursday. With the Fed decision out of the way, Tetangco said markets will shift their focus to what China's monetary authorities will do to address slowing economic growth, among other things.

"With still much uncertainty in global markets that could impact the path of domestic inflation, the Fed opted to keep rates steady, to avoid, in my view, potential policy reversal," he said. He noted that while the Fed could have implemented a token rate increase to take the issue "off the market's mind," it appears to be awaiting more jobs and inflation data.

Tetangco said a short-term rebound is likely for emerging markets roiled by uncertainties surrounding the Fed's rate decision, especially markets with good fundamentals.

"Over the medium term, however, the markets will have to watch for more definitive action from Chinese authorities. The BSP's preemptive tightening moves last year remain relevant and domestic demand appears steady still," said Tetangco, referring to the increase in its overnight rates and in banks' reserve requirement ratio.

He said the central bank will watch how financial markers react to the Fed's decision, paying particular attention to the impact of portfolio flows on domestic liquidity, and will evaluate new inflation forecasts to see if there is need to fine tune policy or communication.

However, the Fed’s decision to freeze rates will ease some pressures off markets across the emerging economies including the Philippines.

“We may see some near relief for EMs (emerging economies) with good fundamentals and yield pick up as we had seen over past few days,” said Tetangco. “Over medium term, however, the markets will have to watch for more definitive action from Chinese authorities.”