BSP to ensure financial market stability
Measures in place to counter impact of Fed taperBy Paolo G. Montecillo |Philippine Daily Inquirer
The Bangko Sentral ng Pilipinas (BSP) is ready to deploy tools that will ensure the stability of local financial markets once the United States’ easy money policies come to their inevitable end in the coming months.
BSP Deputy Governor Diwa C. Guinigundo said monetary officials were ready for all possible outcomes of the US Federal Reserve’s policy meeting this week.
“We are prepared. We have liquidity provisions, we are ready to provide regulatory forbearance and we have made the assurance that peso and dollar liquidity will be available to the market,” Guinidundo told reporters.
The Fed’s Federal Open Market Committee (FOMC) is meeting this week to decide on whether to maintain or scale back its $85 billion in monthly asset purchases amid improving US economic conditions. The two-day meeting ends on Thursday, Manila time.
The Fed currently infuses $85 billion of cash every month into the American economy through the purchase of mortgage-backed securities and US treasuries. US Fed officials have said that they might start slowing down these purchases soon as the US economy was showing signs of improvement.
US unemployment fell to a five-year low last November, government data showed. The US economy also grew at a better-than-expected rate of 3.6 percent in the third quarter, bolstering the expectation that the Fed would start withdrawing its monetary stimulus this month or sometime in the first half of 2014.
The start of the Fed’s so-called taper is expected to lead to the repatriation of foreign money that has helped keep interest rates low and pushed asset prices up in emerging markets like the Philippines.
The reversal of foreign capital flows is expected to lead to higher interest rates in the country. Currencies like the peso, which have strengthened due to the abundance of dollars in financial markets, are also expected to weaken.
Guinigundo reiterated that the BSP was ready to intervene in the foreign exchange market to keep the peso from falling beyond what the central bank felt was its fair value.
Guinigundo said the BSP believed that the Fed would take the more prudent route and wait for more signs that the American economy was on an upswing.
“It’s true, lots of positive news, but I think they will be more prudent to start tapering this year. It might be too early,” the BSP official said. “I think they’re waiting for more positive news.”