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Tetangco: Federal Reserve decision brings relief to PH

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said countries with good economic fundamentals, including the Philippines, will benefit from the latest move of the US Federal Reserve to keep interest rates steady.

“... What would this imply for emerging markets, including the Philippines? We may see some near relief for emerging markets with good fundamentals and yield pick-up [as we had seen over past few days],” Tetangco said in a text message Friday.


“Over medium term, however, the markets will have to watch for more definitive action from Chinese authorities,” Tetangco said.

The US Federal Reserve on Thursday kept interest rates unchanged but hinted there might be a modest policy tightening before the year ends.

Tetangco said with still much uncertainty in global markets that could impact on the path of domestic inflation, the Fed opted to keep rates steady “to avoid [in my view] potential policy reversal.

“With [the] China slowdown, the low global oil prices and US dollar appreciation would continue to dampen domestic US inflation [albeit positive deflationary pressure],” Tetangco said.

He said while some might say the Fed “could have just done even a token hike this time, just to have this off the market’s mind,” the Fed seemed to have needed more from the data.

He said the Bangko Sentral’s pre-emptive tightening moves last year remained relevant and domestic demand appeared steady.

“We will watch market price action to see how market is digesting [the] Fed’s move, check for 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.

ING Bank Manila senior economist Joey Cuyegkeng said the Philippine peso and local bond yields would reflect the Fed’s decision initially through stronger markets.

“The favorable impact may be temporary with Fed normalization remaining the base case even as the timing of the lift off is delayed. In addition, the decision of the Fed to delay liftoff also reflects an assessment that global risks remain and global growth remains relatively weak. These would eventually weigh on emerging markets’ currencies and financial markets,” Cuyegkeng said.

Tetangco said in an earlier statement that like most economies in the Asian region, the Philippines was in a good position to withstand risks, especially coming from the global front.

He said the country’s improved fundamentals and reform efforts had anchored investor confidence and helped achieve investment grade status from major global rating agencies.

Tetangco said the country had managed its external liquidity position and been running current account surpluses for over 10 years now. He said foreign exchange reserves were enough by traditional yardsticks and short-term external debt-to-foreign reserve ratios remained healthy in recent years.

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