Rise in ‘hot’ money inflow seen

The Bangko Sentral ng Pilipinas braces for a possible spike in foreign portfolio investments inflow in the days ahead, which may be brought about by the US Congress’ recent move to prevent the world’s biggest economy from falling into a recession.

BSP Governor Amando Tetangco Jr. said the agreement between the two chambers of the US Congress to temper tax hikes and defer substantial government spending cuts, which were supposed to have taken effect on Wednesday, could significantly boost investor appetite for emerging market assets, including peso-denominated securities.

Tetangco said the BSP was prepared to implement measures to help ensure that the Philippine financial markets would remain calm and would not experience sharp volatility.

“(The agreement) removes one unknown in the global scene, at least for now. This could spawn risk appetite in the short run, resulting in fund flows toward emerging economies,” Tetangco said in a text message to reporters.

“We could see higher volatility in the financial markets. The BSP will remain vigilant and act quickly to avert destabilizing sharp market movements,” Tetangco also said.

A spike in “hot” money inflow is feared to result in a sharper appreciation of the peso.

In 2012, the central bank had intervened in the foreign exchange market, engaging in heavy dollar buying to avert an even sharper rise of the peso against the greenback.

Early last year, the BSP also slapped a higher capital requirement on banks’ holdings of non-deliverable forwards (NDFs) to address speculation on the peso.