The Bangko Sentral ng Pilipinas said it would closely monitor the inflow of “hot money” as the lingering debt problems in the West could further strengthen the flow of portfolio investments into the country and exert too much pressure on local prices in the months ahead.
BSP Governor Amando Tetangco Jr. said the inflation rate remained well behaved in July, but added that inflationary risks posed by the rising foreign investments in domestic stocks, bonds and other securities remain.
Tetangco said the appetite of foreign investors for portfolio assets in emerging markets, like the Philippines, was getting stronger, given the unfavorable situation in the United States and Europe.
“The BSP will remain watchful of developments, particularly the shifts in investor sentiment that affect capital flows,” Tetangco said in a text message to reporters.
He made the statement in reaction to the recent steep rise in foreign portfolio investments flowing into the country.
Data from the BSP showed that in the first semester, the net inflows of foreign portfolio investments reached $2.4 billion, about three times higher than the $687 million registered in the same period last year.
“We will also monitor developments in the US and Europe as they deal with their own fiscal conditions,” Tetangco said.
Within target
In the meantime, the National Statistics Office has just reported that the July inflation hit 4.6 percent, while the average for the first seven months of the year reached 4.3 percent.
The inflation figures remained within the target for the whole year of between 3 and 5 percent.
Central bank officials said the average inflation had been kept within desired levels mainly with the help of the liquidity-management measures implemented earlier by the BSP.
So far this year, the BSP has already raised its key policy rates by a total of 50 basis points, and the reserve requirement on banks by 2 percentage points.
The policy rates now stand at 4.5 and 6.5 percent for overnight borrowing and lending, respectively. While the reserve requirement for banks is now at 21 percent, back to where it was prior to the global economic crisis that peaked in 2009.
The increase in the BSP’s rates was aimed at tempering future demand for loans and help slow down consumption and spending.