BSP warns of market volatility

There is no need to flesh out the latest speech of Federal Reserve Chair Janet Yellen for cues on US interest rates, but brace for the likelihood of volatility as markets react, according to the central bank, GMA News reported.

"The BSP (Bangko Sentral ng Pilipinas) will not necessarily have to move in sync with the Fed should they indeed hike wither in September of December as the Fed chair's comments indicate they are getting closer to their next move," BSP Governor Amando M. Tetangco, Jr. said in a text message to reporters.

During a three-day gathering of central bankers from all over the world in Jackson Hole, Wyoming on Friday, the Fed chief reinforced the US central bank position to raise interest rates later this year.

"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," according to Reuters report, quoting Yellen.

She said, however, that the Fed still nurtures the thought that rate increases in the futures must be "gradual."

The Fed has policy meetings scheduled on September 20 and 21, November 1 and 2, and December 13 and 14.

Tetangco noted Yellen's words were well crafted. "The Fed Chair's statement is more or less as expected, well balanced and nuanced."

Nonetheless, the core of her speech may cause market volatility.

"We are, however, mindful that there could be some near-term financial market volatility as markets react to the Fed statement and rebalance dollar holdings. Nevertheless the BSP has tools to keep market volatility in check," Tetangco emphasized.

"We will continue to monitor developments, including changes in tax levies and weather-related disturbances, that could impact on domestic price and demand dynamics, and make adjustments to our monetary political stance as appropriate," he added.

During its August 11 meeting, the BSP's policysetting Monetary Board kept key interest rates unchanged at 3.5 percent for overnight lending rate, 3 percent for overnight repurchase, and 2.5 percent for overnight deposits.

The policy stance was based on the perception that the current inflation outlook remains "manageable," Tetangco said.

Also earlier this month, the BSP expected to downgrade its inflation outlook to 1.8 percent in 2016 from 2 percent.

This month, inflation is expected to settle within the range of 1.6 to 2.4 percent.