BSP expects ‘hot money’ inflow to rise in 2012

Foreign portfolio investments, which have slowed down since September, may post a sharp growth in 2012 as risk appetite of investors recover.

This was the projection of the Bangko Sentral ng Pilipinas, which said the possibility of sharp increases in foreign “hot money” was an event that would likely happen and that would require keen monitoring by monetary authorities.

The global economic growth was seen to remain slow this year, but BSP Governor Amando Tetangco Jr. said some measures implemented by eurozone officials to address the debt crisis in the region might lift investment appetite of fund owners and encourage them to purchase more securities from emerging markets like the Philippines.

“If the situation [debt situation in Europe] is seen to be better, then the euro is likely going to appreciate. And when the euro appreciates, the other currencies, including those in Asia, tend to follow suit,” Tetangco said.

“The implication is we may see high capital inflows again,” Tetangco added.

In the earlier months of this year, foreign portfolio investments were rising substantially due to the optimism on emerging market economies.

In September, however, the portfolio flows slowed down as the prolonged debt crisis in the euro zone tempered the risk appetite of investors.

But Tetangco said this appetite was expected to improve and monetary officials would be prepared to implement measures against the ill-effects of too much portfolio inflow.

Although higher portfolio investments are an indication of confidence among investors in an economy, too much of these could disrupt the economy. Much higher inflows tend to make a local currency appreciate and too much appreciation is disadvantageous to a country’s export sector.

A sharp rise of the peso makes Philippine-made goods more expensive in peso terms and thus makes locally manufactured goods less competitive in the international market.

The BSP said monitoring the inflows was necessary to avoid its adverse impact through the implementation of proper monetary action.