The Bangko Sentral ng Pilipinas (BSP) is monitoring the country’s financial market on the impact of the Federal Reserve’s bond buying program.

Minutes of the US central bank’s policy-setting Federal Open Market Committee (FOMC) meeting last December was released recently and it showed that some of its voting members are considering the option to extend asset buying only within the year.

BSP Governor Amando Tetangco Jr. said “decisions of major central banks, including the Fed, affect the risk assessment of global investors, which could then affect capital flows to the country.”

He explained that “if the market perceives any move as resulting from improved growth prospects in the US, then such may encourage risk-taking, and therefore more inflows to us.”

He, on the other hand, noted that “if action is perceived as a reaction to potential financial stability concerns, then it may spur risk aversion and therefore encourage more flows to what market believe to be safe haven assets.”

“BSP is watchful of the conduct of domestic market participants and will try to refine regulation so they become more aware of the inherent riskiness of transactions they enter into,” he stressed.

The Fed earlier extended its program of buying US$ 40 billion worth of mortgage-backed securities and US$ 45 billion worth in Treasuries monthly to lift the housing market.

It also vowed to keep interest rates at record low levels until the unemployment rate falls below 6.5 percent and for as long as estimates of medium-run inflation do not exceed 2.5 percent.*PNA