By Joann Santiago
MANILA, (PNA) — Economies with limited monetary and fiscal space were given a chance to rethink their stance after the Federal Open Market Committee (FOMC) decided to maintain the Federal Reserve’s key rate at record-low and the US$ 85 billion monthly bond purchases.
“It buys time not only to US but also to some EMs (emerging markets) that are interest rate sensitive,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo told reporters Friday.
On Thursday, the FOMC kept the Fed interest rate at 0.25 percent as well as the third quantitative easing (QE3) program after noting that the positive economic developments in the US are not enough to implement any changes in the Fed’s policy stance.
Guinigundo noted that if the FOMC decided otherwise and increased the Fed rate as well as cut the stimulus program then interest rates in other economies will follow suit.
He explained that if concerned economies “want to arrest any capital, sudden stop or a reversal, then monetary policy in many jurisdictions will also have to adjust accordingly.”
“For the other countries with very little monetary policy-the action of US Fed gives them time to keep policy rate and sustain recovery that they’re just experiencing,” he said.
On the other hand, Guinigundo said EMs with monetary and fiscal space such as the Philippines “can simply maintain where they are right now.”
The FOMC was widely expected to cut the Fed’s bond-buying program but after this did not materialize this week the central bank official said “the uncertainty remains because the actual timing of tapering was has just been postponed in a few more month.”