BSP’s guard up as PH welcomes credit upgrade

As the country welcomes the investment grade it received from Standard & Poor’s, the Bangko Sentral ng Pilipinas is rolling up its sleeves to prevent an asset price bubble that may arise from the bullish sentiment of portfolio investors in the economy.

The BSP said the move of S&P on Thursday to lift the country’s credit rating from junk-bond status to investment grade would make peso-denominated securities more attractive to fund owners—locals and foreigners alike.

As a result, the central bank would need to closely monitor financial markets and prevent asset prices from rising sharply.

“The BSP remains vigilant for any asset price bubbles and/or other vulnerabilities that cause financial instability,” it said in a statement Friday.

The statement was issued just as the Philippine Stock Exchange Index hit a record high and as the peso strengthened back to the 40-to-a-dollar level during intraday trading yesterday.

The move of S&P came after Fitch Ratings raised the country’s credit last March.

Prior to the upgrade, the BSP had already implemented several measures to tame the effects of a surge in foreign portfolio inflows.

Some of the measures included the prohibition of foreign funds from being invested in special deposit accounts (SDAs), the imposition of higher capital requirement on banks’ exposure to non-deliverable forwards, relaxation of foreign exchange rules, and reductions in the SDA interest rate.