The Development in Europe has the Bangko Sentral ng Pilipinas on edge.
The BSP said that the unraveling of the crisis in Cyprus could trigger the flight of capital away from emerging markets like the Philippines.
BSP Governor Amando Tetangco Jr. told reporters that the central bank is prepared to implement measures to maintain the stability of the Philippine economy.
“What is concerning financial markets globally is the fear of contagion,” Tetangco told reporters.
He was referring to the agreement among members of the European Union to require depositors to share the burden of bailing out crisis-stricken Cyprus if the country were to get financial aid.
If the government of Cyprus would agree to receive financial support from the European Union, bank deposits worth at least 100,000 euros would be imposed a one-time tax of about 10 percent; deposits worth below the threshold would be slapped a tax of 6.5 percent.
The concern among market players is that other countries in the euro zone that also have debt problems may be asked to swallow the same bitter pill.
Financial markets worldwide are shaken by the thought that even money placed in banks may no longer be safe.
On Monday, “we saw flight of capital toward ‘quality.’ As a result, yields on US treasuries went down due to higher demand and the peso weakened a bit,” Tetangco said.
He said the the debt problem of Cyprus showed that the crisis in the euro zone is far from over.
In response, the BSP is carefully monitoring market developments to determine implementation of appropriate measures at the right time, Tetangco said.
Currently, the Philippines and other emerging markets in Asia are witnessing a surge in inflow of foreign portfolio investments due to the growth of their economies.
Data from the BSP showed that net inflow of foreign portfolio investments reached $211.65 million in February, a reversal from the net outflow of $305.30 million in the same month last year.
The surge in foreign portfolio investments has prompted the BSP to implement measures to temper the adverse effects of the inflow and ensure it does not stir up volatility in the market.