BSP guard up as it monitors prices of financial assets
The Bangko Sentral ng Pilipinas said it would closely watch the prices of financial assets and guard against inflationary threats posed by foreign capital inflows.
The BSP decided to closely monitor prices of financial assets after several Asian central banks aired their concern over the potentially adverse inflationary effects of rising foreign portfolio investments.
BSP Governor Amando Tetangco Jr. said that, apart from the strict monitoring of prices of commodities and real properties, the regulator would closely watch prices of financial products to keep the economy stable.
“We [the BSP] are mindful of movements in prices of real and financial assets. We will make adjustments to the stance of policy as necessary, and continue to refine our conduct of monetary operations to make these more effective in achieving our mandate,” Tetangco said Tuesday in a text message to reporters.
Earlier, Tetangco said stability of consumer prices is no longer the sole objective of the BSP. The regulator now has to stabilize the country’s financial sector.
The need to stabilize the financial sector came as the Philippine Stock Exchange Index registered record highs, while interest rates on fixed-income instruments dropped as a consequence of rising foreign capital inflows.
Foreign capital has been going to emerging markets like the Philippines due to the poor growth performance of advanced economies.
Given the substantial demand for peso-denominated equities, the average price earnings (P/E) ratio of Philippine stocks is now estimated at around 17 percent—one of the highest in the region.
The BSP said that the current P/E ratio is still within comfortable levels. But it added that it was prepared to implement measures should the flow of foreign capital threaten the stability of the country’s financial system.
BSP Deputy Governor Diwa Guinigundo said that the central bank is considering implementing another round of foreign exchange-rules liberalization. Such a move is expected to help temper and keep liquidity growth within prudent levels.
In particular, the BSP is looking at easing more rules and documentary requirement on taking dollars and other foreign currencies out of the country. The BSP believes that by easing the restrictions on foreign currencies being brought out of the country, the impact of foreign exchange inflows on inflation will be countered.
“Further liberalizing foreign-exchange rules is one of the things we are considering,” Guinigundo said.
Also, Guinigundo said the BSP is encouraging capital market players to innovate more financial products. Having more will help ease price pressures of existing financial products.
