BSP ready to fine tune policy after Fed taper

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said yesterday it is ready to adjust its monetary policy if necessary following the US Federal Reserve’s decision to begin trimming the volume of its monthly massive bond buying program.

“The Philippine fundamentals remain solid and policy settings continue to be appropriate. The BSP is watching developments if there is any need to fine-tune policy,” BSP Governor Amando M. Tetangco Jr. said in a text message.

The US Fed early Thursday morning in Manila announced a modest cut in its monthly asset purchases by $10 billion to $75 billion.

The move was on the back of an improving US economy although US Fed Chairman Ben Bernanke stressed the central bank will continue supporting economic growth as recovery is still far from complete.

“Coming to this meeting, several Fed officials had already indicated an openness to a taper soon, and some market participants have indeed called for, at best, a $10-billion reduction in asset purchases,” Tetangco noted.

“So far, market has reacted as expected,” he added.

The US Fed has also kept its key policy rates at near-zero, a level seen since 2008. Twelve Fed officials see a rise in the rates by 2015, while three expect the move in 2016.

“This step towards normalization is welcome, as this means the US economy is growing with some traction setting in, which in turn is positive for trade in EMEs (emerging markets and economies),” Tetangco said.

“There may be some volatility in the financial markets near term, but not in the order of what we had seen in May and June this year,” he added.

Finance Secretary Cesar Purisima said Philippines is in a strong position to withstand any turbulence that may arise from the US Fed’s decision to scale back its bond buying program, citing the  country’s improved fiscal policy, robust macroeconomic fundamentals and strong liquidity.

“Philippines’ much improved macroeconomic fundamentals and better managed fiscal situation will allow the country to go through tapering from a proactive position,” Purisima said.

Purisima said the country is well papered for the tapering of the US Fed’s record stimulus given its good governance program.