Bangko Sentral ready for fund inflows after Fed keeps bond program intact

There are enough monetary tools to stave off risks that may stem from a resurgence in foreign capital back to domestic markets after the US Federal Reserve kept its $85-billion a month bond-buying program intact, the Bangko Sentral ng Pilipinas chief said Thursday.

“The Fed action should be positive for risk appetite for EMs (emerging markets), including the Philippines,” central bank Governor Amando Tetangco Jr. told reporters in a text message.

The central bank will “maintain a presence” in the foreign exchange market “if,

in our assessment, there is excessive exuberance in the financial markets especially today because of the unexpected Fed announcement,” Tetangco said.

Bangko Sentral policy allows market forces to determine exchange rates, but intervenes in the spot market through agent banks to prevent sudden and excessive ups and downs.

Reuters reported the US Fed said on Wednesday (Thursday in Manila) – after a two-day Federal Open Market Committee meeting – it would continue buying bonds at $85 billion a month.

In a news conference following the announcement, Fed Chairman Ben Bernanke said a highly accomodative policy will remain in place until an improved outlook for the economy is confirmed.

On the Philippine Stock Exchange, the benchmark PSEi surged by over 3 percent back to the 6,500 level in early trading Thursday.

As of this posting, the peso is trading within the 43.05 to 43.25 per dollar band, stronger than the 43.53:$1 close Wednesday.

Monetary authorities “ remain watchful of developments in the real asset markets,” a favorite investment vehicle of fund managers, Tetangco noted.

He said “... macroprudential tools [are] in place to manage surges in capital inflows, consistent with our price and financial stability objectives.”

In its September 12 meeting, the policy setting Monetary Board – which Tetangco heads – kept policy rates at record lows of 3.5 percent for overnight borrowing and 5.5 percent overnight lending.

It also kept yields of special deposit accounts – a tool to mop up excess liquidity – unchanged at 2 percent across all tenors.

Tetangco said the latest Fed move will help buoy the Philippine economy

“To the extent the Fed action helps to ensure the incipient US growth is not derailed, it should also be positive for our own growth prospects,” he said. – VS, GMA news

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