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Fed line seen to rock market

BSP expects volatility as fund managers rethink strategies

Investors may expect more volatility in financial markets in the coming months following the US Federal Reserve’s dovish statements this week, which seemed to rule out a rate hike previously expected in June.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said fund managers that priced in an early increase in global interest rates would have to rethink their strategies, heightening volatility as investors make new bets. Others that stayed on the fence, meanwhile, would “proceed with caution.”

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“During this time, when data seem to suggest that the Fed has room to delay action, we can expect some volatility,” Tetangco told reporters on Thursday.

Earlier this week, the US Federal Reserve removed any hints on the timing of its much-awaited rate hike. Following its two-day meeting, the Fed’s open market committee, which decides the rates, came out dovish, citing weaker-than-expected data that could warrant an extended period of cheap money policies to support the American economy.

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In the first quarter of 2015, the US economy almost ground to a halt, posting a growth of just 0.2 percent, much slower than most expectations.

The US Fed earlier telegraphed plans to hike its benchmark interest rates, which influence the cost of money and the dollar’s value, this year as the American economy showed signs of strength. The first quarter economic report may force the Fed to stay its hand for several more months.

“Those who have positioned themselves for an early Fed hike (will) reassess their next steps, while those who have held off may continue to proceed with caution,” Tetangco said.

For local monetary authorities, interest rates in the Philippines were appropriate for the time being.

The BSP’s policymaking Monetary Board will meet in mid-May to decide its next move on benchmark rates that affect the prices of bank loans to consumers and businesses. The main overnight borrowing and lending rates currently stand at 4 and 6 percent, respectively.

“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 a need to make policy adjustments,” Tetangco said.

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TAGS: Business, financial markets, US Federal Reserve, volatility
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