FINANCIAL MARKETS could see some hiccups as a response to a fresh interest rate hike in the United States, although its impact is expected to stay muted as players have priced in this move, a central bank official said.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said investors and market players have largely factored in a third round of a “lift-off” from the US Federal Reserve during their rate-setting meeting this week, which will keep the impact on global yields and exchange rates subdued.
The Fed is widely expected to raise benchmark rates by 25 basis points during their Dec. 12-13 review, which would mark the third tightening move from US policy makers this year.
“That [hike] has been factored already by the market. Of course after the fact, the market still would show some reaction but not as much as it is almost an anticipated and expected [event],” Mr. Guinigundo told reporters in an ambush interview.
Analysts are almost certain the rate hike will be introduced this week, following the release of the minutes of the Fed’s Oct. 31-Nov. 1 meeting that quoted policy makers as seeing the need to raise interest rates in the “near term.” Fed officials saw the US economy remains “poised for strong growth,” confirming observations of sustained recovery, Reuters said in a report.
Higher yields in the United States often trigger capital outflows from emerging markets like the Philippines, as investors go after competitive returns in the so-called safe haven.
Back home, BSP officials have repeatedly said they do not have to move in lock-step with the Fed, as domestic conditions remain the biggest consideration for the Monetary Board.
Inflation has averaged at 3.2% from January-November to settle within the 2-4% central bank’s target band. This is accompanied by robust economic growth, which has averaged 6.7% during the first three quarters to keep the Philippines as one of the fastest-growing in the region.
BSP Governor Nestor A. Espenilla, Jr. even said uncertainty over the pace of monetary policy tightening in the US and other advanced economies would likely trigger “bouts of volatility” in the financial markets, but said regulators stand well-armed to weather these headwinds. He noted the central bank can deploy various monetary policy tools to deal with such uncertainties as needed.
Economists broadly expect the BSP to keep policy settings on hold during their Thursday review, in light of manageable inflation and firm domestic demand that remains supportive of overall economic growth. — Melissa Luz T. Lopez