Fed Rate Hikes have Limited Impact on PHL Banks’ Earnings- Bank Exec

An official of a local bank is not worried on the impact of the hikes in Federal Reserve’s key rates on domestic financial institutions’ income, saying that domestic fundamentals will cushion any negative effect of the rate increase.

“Local banks will not be that affected because it still depends on the local economy. I think we’re a very strong economy. If ever there would be negative impact, it will hit the currency. But that’s not really bad because it will benefit the exporters,” EastWest Banking Corporation (EastWest Bank) president and CEO Antonio Moncupa Jr. told reporters at the sidelines of the Anvil Business Club’s forum Wednesday night.

On Wednesday, the peso closed at 50.31 against the greenback, weaker than its 50.18 finish Tuesday.

However, Moncupa pointed out that after the Fed announced the decision of its Federal Open Market Committee, after its rate setting meet last March 14-15, to hike the Fed funds rate by 0.25 basis points to a range between 0.75 to one percent the peso even appreciated.

This after the local currency ended at 50.12 last March 16, better than the previous session’s 50.34 close.

Moncupa explained that this would be deemed unlikely but it happened because domestic fundamentals remain strong.

He, however, said there is still a question on how many more hikes would the Fed do this year.

He explained that expectations for additional rate hikes will continue to lend support to the US currency but also noted that the rate increases will not be left unchecked by Philippine monetary authorities to address rate differentials.

To date, the Bangko Sentral ng Pilipinas’ (BSP) overnight borrowing rate is three percent, which is the key rate of its Interest Rate Corridor (IRC).

The corridor’s ceiling rate is 3.5 percent, which is also the overnight lending rate and the floor rate is 2.5 percent, which is also the rate of its special deposit account (SDA) facility.

IRC was implemented since June 2016 and is targeted to help monetary officials better manage inflation and promote long-term sustainable growth as well as enhance the link between the central bank’s policy stance and the real economy. (PNA)