Financial marts should now be ready for Fed move – BSP

MANILA, Philippines - Financial markets should now be ready for the US Federal Reserve’s impending tapering since the announcement came in May, a senior Bangko Sentral ng Pilipinas official said.

“Should the Fed move, I believe that many markets, if not all, have already factored in the action... I think what is uncertain is only the timing as well as the pacing of the reduction,” BSP Deputy Governor Diwa C. Guinigundo said. 

The Fed is expected to scale back its massive stimulus program and all eyes are now on the Federal Open Market Committee meeting on Sept. 17 to 18, during which such action is foreseen to be announced.

Fed Chairman Ben Bernanke in May already hinted the US central bank could reduce its monthly bond purchases, causing volatility particularly in emerging markets as investors move away from them and troop back to the US.

“Just to put everything in context, the $85 billion (worth of asset purchases a month) represents a very small amount of the total accommodative action on the part of the US Fed if you look at the total of both the asset-backed and mortgage-backed securities purchased by the US Fed and the US Treasury,” Guinigundo said.

“To me, what is more important is the signal that it sends... While we should be worried, at this point, we should have prepared already in terms of monetary policy and in terms of the market--their portfolio decision,” he said.

The BSP’s policy-making Monetary Board, in its latest rate-setting meeting last Thursday, kept rates steady ahead of the FOMC meeting.

Guinigundo said the action was partly due to the uncertainty in the global markets as the Fed’s tapering is being anticipated.

“Keeping the policy rates steady ... is the prudent approach... We need additional observation with respect to key economic and financial indicators before we change the stance of monetary policy,” he said.

Overnight borrowing and lending rates were left unchanged at 3.5 percent and 5.5 percent, respectively. 

The central bank cited the benign inflation environment that allows it to keep monetary policy accommodative.