US Fed move on bond-buying “buys time” for policy tweaks in emerging Asia – Fitch

The US Federal Reserve decision to its keep bond purchases intact gives monetary authorities in the Philippines and the rest of emerging Asia time to tweak policy toward addressing risks that come with the inevitable tapering of the stimulus program. 

 

In a statement Friday, Fitch Ratings said policies keeping sustainable growth without fanning inflation and incurring trade deficits may be employed to ward off any risks, particularly in countries nursing current account deficits.

 

“Success in lowering external imbalances to within financeable limits should help anchor investor confidence and head off any future resumption or intensification of market pressures,” the statement read. 

 

On Wednesday (Thursday, PHL time) the Fed refrained from altering its $85-billion bond-buying program to bolster the US economy, a move that surprised markets around the world. 

 

In May, Fed Chairman Ben Bernanke heralded an end to stimulus measures and sparked volatility in financial markets, depressing emerging currencies and straining funding in some economies. 

 

Fitch still expects global funding conditions to tighten over the coming year, even if the pace and scale the eventual winding down of the US program remain uncertain. 

 

“Therefore, measures to keep growth on a sustainable footing without a structural deterioration in trade deficits or sustained pick-up in inflation pressure, remain important for shoring up investor confidence and for sovereign creditworthiness,” according to Fitch. 

 

In an interview Friday, Bangko Sentral ng Pilipnas Deputy Governor Diwa Guinigundo said he expected a rush of speculative money back to emerging markets. 

 

Guinigundo maintained a number of options are available to cushion the impact of volatility amid the Philippine current account surplus and healthy fiscal space – key factors that elicited an investment grade rating from Fitch and Standard & Poor’s early this year. 

 

“All told, what we expect is that a possible inflow of capital can take place as the market continues to consolidate its views about its recent decision of the US Fed,” he said. 

 

“While yes the uncertainty remains, it still buys time for countries with very little fiscal space. No one should say that we were caught off-guard,” the central bank official said. 

 

While macroeconomic fundamentals in the Philippines remain healthy, listed Bank of the Philippine Islands economist Emilio Neri Jr. said the prolonged economic stimulus in the US will give some Philippine corporations time to address concerns over reliance on funding through foreign debt. 

 

Philippine monetary authorities, Neri noted, still have enough fire power should the need to employ measures arise. 

 

“The BSP has a wide-array of options,” he said, citing increased monitoring of real estate lending, tightening of deposit conditions in the central bank’s vault, and tweaks in monetary policy.  

 

On Thursday, Bangko Sentral Governor Amando Tetangco Jr. said the policy-setting Monetary Board has enough tools to stave off risks that may stem from a resurgence in foreign capital back to domestic markets. 

 

He noted the Fed action is positive for Philippine growth prospects. – VS, GMA News