Economist says risks in currency market expected till next six months

By Joann Santiago

MANILA, Oct. 8 (PNA) — Volatilities in the currency market, among others, are expected until the Federal Reserve finally delivered its initial rate hike.

Thus, the latest improvement of the Philippine peso along with regional currencies, said ING Bank Manila senior economist Joey Cuyegkeng.

Markets are still waiting for any hints on the possible timing of the Fed rate hike but Cuyegkeng, in a commentary, said “minutes of the FOMC (Federal Open Market Committee) meeting last month may provide some clues of how close the FOMC decision could have been in raising policy rates last September and of the likelihood of a December 2015 rate hike.”

“A number of FOMC policymakers continue to warn the market a rate hike in 2015 especially market expectations of a March 2016 rate hike,” he said.

Some Federal Reserve presidents like James Bullard of St. Louis Fed and William Dudley of New York Fed have indicated their preference for a rate hike this year if positive economic reports from the world’s largest economy continue to come out.

The last time the Fed rates were adjusted is in December 2008 when it was cut to record-low of zero to 0.25 percent.

This week, the greenback weakened to other currencies given the weaker-than-expected rise of non-farm payrolls last September to 142,000 from market consensus forecast of 203,000.

Some economists said this might be a factor for further delay in the Fed rate increase, which is further disadvantaged by the cut of global growth forecasts by several multi-laterals and debt raters for this year as well as the slowdown of the Chinese economy.

Cuyegkeng said “there are still risks ahead with the Fed rate hike still expected in the next six months.”

”IMF (International Monetary Fund) also warns of the substantial over borrowing of EM (emerging market) corporations and that commodity prices remain low despite the recent bounce that also supported the recovery of EM financial assets,” he said.

Thus, he warned that current “strength (of currencies in the region) could be temporary.” (PNA)