MANILA, Philippines – The US Federal Reserve’s decision to keep its asset-purchasing program in place will provide a lift to economic prospects in the Philippines in the short term.
However, the research arm of Metropolitan Bank and Trust Co. (Metrobank) said volatility still remains as markets await the timing of the Fed’s tapering.
“The decision to hold off tapering for now will boost economic prospects in the short term, particularly in the housing and auto industries that are very sensitive to interest rate movements,” Metrobank said in its research report.
The Fed on Sept. 18 surprised markets around the world when it said it is sticking to its massive bond-buying program. The move gave a boost to markets, including those in emerging economies, as investors scrambled for high-yielding assets.
But Metrobank stressed volatility will still be experienced by markets as the tapering will still be implemented sooner or later.
“Tapering is still highly likely to start sooner than later so market volatility will still be the order of the day. Expect the peso-dollar exchange to continue to swing around despite the strong OFW remittances that should peak this coming fourth quarter,” Metrobank said.
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Emerging markets have experienced sell-offs since May, when the US Fed hinted at tapering stimulus.
“[A] major concern is the significant rise in interest rates, largely a market reaction to the Fed’s announcement of the tapering in May. The US 10-year Treasury bond yield increased by nearly 120 points over the course of several weeks, which slowed, among other things, mortgage lending,” Metrobank noted.
“The Fed’s decision to put off, for now, any cut in its bond purchases pushed bond yields lower. The Fed seems to have achieved its desired response, at least in the short term,” it added.
The Bangko Sentral ng Pilipinas, following the Fed announcement, said it has enough tools to manage capital inflows as a “re-flow” of such is expected in the coming months. The central bank said it has macroprudential tools to manage capital inflows in line with its mandate to keep domestic inflation manageable and within target.