US Fed’s rate decision market positive – Tetangco

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) believes the decision of the US Federal Reserve to keep interest rates unchanged at their record low of near-zero is market positive.

BSP Governor Amando Tetangco Jr. said the US Fed is no longer as concerned on the impact of external developments on their own domestic dynamics as well as the impact of their policy actions on global financial markets.

The US Fed on Wednesday voted to leave interest rates at zero to 0.25 percent but raised the likelihood of a lift-off in December after keeping key policy rates for the past seven years.

“In a way, this could signal that extreme market reactions are no longer expected, and that they expect more normalcy. This should be market positive,” he added.

The BSP chief pointed out monetary authorities would continue to monitor developments after the US central bank’s Federal Open Market Committee (FOMC) hinted of a possible rate hike at its next meeting in December.

“That said, as well are essentially a price taker in the scheme of things, we will continue to monitor domestic market reactions, to see if any action is needed on our part to contain undue market volatilities,” Tetangco said.

The BSP has two remaining policy-setting meetings this year scheduled on Nov. 12 and Dec. 17.

The BSP has kept interest rates unchanged for eight straight policy-setting meetings since October last year. The overnight borrowing rate is currently pegged at four percent while the overnight lending rate is set at six percent.

The BSP raised policy rates by 50 basis points and increased the reserve requirement ratio levels for banks to 20 percent to siphon off excess liquidity in the financial system.

Uncertainties about the impending interest rate hike in the US and the economic slowdown in China have caused volatilities in the global financial market.

The BSP is set to adopt the proposed changes in the framework for monetary operations designed to enhance the effectiveness of monetary policy in the second quarter of next year.