Phl may experience new wave of volatility on Yellen remarks

MANILA, Philippines - The Philippines may experience new waves of volatility and capital flight following the US Federal Reserve’s ambiguous comments on when it is going to finally raise interest rates, the Bangko Sentral ng Pilipinas said.

“While the Fed statement gives BSP room to keep rates steady, recent price action shows we must be mindful that the comments could also spur more market volatility,” BSP Governor Amando M. Tetangco Jr. said in a text message to reporters.

US Fed chairman Janet Yellen, appearing before a Senate Banking Committee earlier this week, said interest rates hike may be considered “on a meeting-by-meeting basis.”

“That the Fed chair’s comments were not clear on the “when” shows the Fed is continuing to veer away from calendar-dependence, and reaffirms its data-dependence,” Tetangco said.

“As we saw yesterday, market received the Fed comments as dovish, and encouraged some “risk on” trades. We may therefore see capital moving further to the long-end of the US curve to EMEs,” he said.

The Fed has kept interest rates near zero following the global financial crisis of 2008 and employed a massive asset-buying program to pump money in the US economy.

In May 2013, waves of volatility hit global financial markets as the Fed then hinted it may start reducing its bond-buying program as the US economy showed concrete signs of recovery.

Emerging markets and economies, once safe havens for investors as advanced economies slowed, saw capital flight following the wait when the Fed would taper its asset-buying program. The US central bank in January last year finally started to cut the volume of assets it bought and ended the program in October 2014.

The Philippines, for one, recorded a balance of payments deficit of $4.48 billion in January 2014 as investors rebalanced their portfolio amid the Fed’s actions. This resulted in the BOP ending in a deficit of $2.879 billion last year, although the BSP said this should return to a surplus of $1 billion this year.