Nail-biting in PH markets as Fed keeps rates

The US Federal Reserve building in Washington, DC. AP PHOTO

The nerve-racking wait continues.

Officials expect prolonged bleeding in domestic financial markets after the US Federal Reserve decided to put off what could have been a rate increase in nearly a decade.

With the decision, analysts said speculation on the inevitable rate adjustment’s schedule would persist, leading to continued outflows from emerging markets like the Philippines.

“The US Fed seemed to have needed more from the data,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. told reporters Friday.

He said market players were hoping for a “token” rate increase by the US Federal Reserve, which would have taken monetary tightening “off the market’s mind.”

At the conclusion of a two-day meeting, the Federal Open Market Committee (FOMC), the US central bank’s policymaking body, decided to keep rates at record lows.

“We will watch market price action to see how the market is digesting the Fed move, check for the impact of portfolio flows on domestic liquidity, and evaluate new inflation forecasts, to see if there is need to fine-tune policy levers or communication,” Tetangco said.

He added that the US Fed’s decision would provide relief to local markets in the next few days, with interest rates expected to decline and the local currency seen advancing. As market cheer settles, however, the BSP said investors might turn more cautious.

“Expect the volatility till the end of the year,” BSP Deputy Governor Diwa C. Guinigundo said in a briefing.

In its statement, the US Fed said it was wary of the possible effects a rate increase might have on global financial markets. The decision may be a sign of caution on the part of the Fed, cautious of creating ripples that may disrupt the fragile American economic recovery.

“This would eventually weigh on emerging market currencies and financial markets,” said Joey Cuyegkeng, ING’s economist in Manila.

Apart from the US Fed’s moves, the economic climate in China also threatens the Philippines’ stability. Economic growth in China has slowed this year, dragging down the rest of the Asia-Pacific region.

The threat of El Niño and uncertainty ahead of next year’s elections could also be a source of concern for investors.

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