BSP: Fed decision affirms Philippine policy stance

Reuters

Posted at Jan 27 2011 12:03 PM | Updated as of Jan 28 2011 02:50 AM

MANILA, Philippines - The US Federal Reserve's decision to keep its policy rate unchanged near zero supports the Philippine central bank's current stance to hold its interest rates at a record low, Governor Amando Tetangco said on Thursday.

The Fed's stance also validated market views that the US was unlikely to tighten policy in the near term, Tetangco said.

"The Fed move relieves some pressure off the consensus that has been building up that the US economy is at a pace of recovery which may lead the Fed to change its policy stance, and the effect of such development on inflation expectations and portfolio rebalancing out of emerging markets," Tetangco said in a mobile text message to Reuters.

"This is broadly in line with our own assessments for now and supports our current policy stance," he said.

Tetangco also said the central bank was watching developments in growth patterns of the country's major trading partners, like the United States and China, as part of a regular review of its monetary stance.

The central bank's next policy-setting meeting is on Feb. 10.

The Philippines is one of few Asian countries not to have raised rates since the global financial crisis. The central bank's overnight borrowing rate is at 4%, a record low.

On Wednesday, the Fed showed it was in no rush to cut short its rescue of the US economy, saying high unemployment still justified its $600 billion bond-buying plan even though the economy has shown some signs of improvement.

While the Fed outcome could boost the global economic momentum, it could fuel more capital inflows into emerging markets such as the Philippines, central bank deputy governor Diwa Guinigundo said.

"Short term impact is to increase risk aversion and induce more FX inflows to emerging markets including the Philippines," Guinigundo said in a mobile text message to Reuters.

"Long term effect is expected to be more positive. Growth recovery in the US could be boosted, financial markets normalise, such that global prospects could be brighter," he said. "The risk of course is the fiscal costs associated with further quantitative easing."