BSP watching market movements post Fed

Reuters

Posted at Mar 19 2015 01:03 PM | Updated as of Mar 19 2015 09:50 PM

Tetangco says peso has moved in line with region

MANILA (UPDATE) - The head of the Philippine central bank said on Thursday it is monitoring shifts in financial market sentiment, even as he reiterated that the local peso currency has moved in line with the region.

Governor Amando Tetangco said markets remain cautious after the U.S. Federal Reserve moved a step closer to hiking rates for the first time since 2006, and policymakers are mindful of potential risks associated with capital flows.

"We continue to be watchful of shifts in market sentiment... We will see how these would affect domestic inflation dynamics," Tetangco told reporters ahead of a policy meeting on March 26.

"We will make adjustments to the stance of policy as appropriate," Tetangco said.

The Bangko Sentral ng Pilipinas kept the overnight borrowing rate  at 4 percent for the third consecutive meeting last month, with inflation forecast to fall within its 2-4 percent target this year.

Tetangco also said this week the central bank was "mindful" of potential pressures on asset prices as investors shift money to the United States and emerging market economies to get higher yields.

"We are cognizant that policy rate adjustments may not necessarily be the best tool to address any brewing financial stability pressures, especially at a time when the inflation outlook remains well-anchored," Tetangco said.

The peso has risen 0.2 percent against the U.S. dollar so far this year, making it one of the best performing currencies in the region.

Fed trims projected outlook for growth, inflation, rates

The Federal Reserve on Wednesday moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and inflation projections, signaling it is in no rush to push borrowing costs to more normal levels.

The U.S. central bank removed a reference to being "patient" on rates from its policy statement, opening the door wider for a hike in the next couple of months while sounding a cautious note on the health of the economic recovery.

Fed officials also slashed their median estimate for the federal funds rate - the key overnight lending rate - to 0.625 percent for the end of 2015 from the 1.125 percent estimate in December.

The cut to the so-called "dot plot," together with other economic concerns cited by the Fed, sent a more dovish message than investors were expecting, and pushed market bets on the central bank's rate "lift-off" from mid-year to the fall.

"Just because we removed the word 'patient' from the statement doesn't mean we're going to be impatient," Fed Chair Janet Yellen said in a press conference after Wednesday's statement.