The revelation that most top officials of the US Federal Reserve favor a tapering off in its monthly $85-billion bond buying program this year will weigh heavily on local policymakers’ minds when they meet next month to possibly adjust monetary settings.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said Thursday the policy-making Monetary Board would closely watch the US Fed’s sentiment and its effects, particularly on capital flows to emerging markets like the Philippines.
“The BSP will consider these developments at our policy meeting in September,” Tetangco told reporters.
This followed the release of the minutes of the Federal Open Market Committee (FOMC) meeting earlier this month, which showed that most members of the committee were “comfortable” with the tapering of the Fed’s bond-buying program sometime this year.
Most committee members also agreed that the bond-buying—which is meant to keep interest rates in the US low to spur economic activity—should cease by the end of 2014. This comes amid signs that the US economy was on track to recovery and would soon no longer need as much monetary stimulus.
The Fed has been buying US treasuries and bonds in the amount of $85 billion a month since late 2009 to prop up the world’s largest economy. Last June, Fed Chair Ben Bernanke hinted that bond purchases would continue but at a slower rate, as officials start to wean the US economy off the stimulus program.
The revelations in the Fed meeting’s minutes—together with the release of data earlier this week that showed that one of Southeast Asia’s leading exporters, Thailand, entered a recession in the second quarter of 2013—sent local financial markets crashing on Thursday.
“There’s also pent-up activity after the three-day break this week,” a local banker said. Local markets were closed on Monday and Tuesday due to heavy rains and flooding that shut down the Philippine capital. Foreign exchange and stocks trading were also suspended on Wednesday, Aug. 21, which was a nonworking holiday.
Tetangco said the BSP’s policy moves would be guided by its mandate of maintaining price and financial stability. This would include managing the effects of the flow of foreign capital, which affects local financial markets.