The Bangko Sentral ng Pilipinas (BSP) is ready to step in to mitigate the effects of any sudden outflow of foreign capital that may have adverse effects on the economy.
BSP Governor Amando M. Tetangco Jr. this week called for calm after the Philippine Stock Exchange Index (PSEi) lost about 10 percent of its value in the last two weeks, saying that financial markets were naturally volatile.
“Financial markets should be expected to move up and down,” Tetangco said, adding that the correction seen in the past week should not have come as a surprise to investors.
After touching a record high of 7,403.65 in May, the benchmark PSEi closed 6,557.89 points on Wednesday as foreign investors pulled back amid fears that the US Federal Reserve would start tightening its policy stance.
The PSEi ended its three-day slide to close 0.78 percent up to 6,609.01 points on Thursday.
Tetangco said the country’s main economic fundamentals remained sound, which should mean good prospects for locally-listed firms.
Earlier this week, ratings firm Moody’s Investor Service hinted that it might elevate the Philippines to investment grade status soon, following in the footsteps of Standard & Poor’s and Fitch Ratings.
This follows the recent announcement that the Philippine economy grew by 7.8 percent, which was better than expected, in the first quarter of the year, making it Asia’s fastest-growing market.
Moody’s also noted that improved tax collections and the Aquino administration’s fresh mandate after having won control of both houses of Congress last May.
Tetangco said the number of additional corporate issuances in the pipeline for the year should add to excitement among local traders.
“In addition, the share of domestic buyers in the stock market has been on an uptrend,” Tetangco said. “These factors should provide sound bases for stability in domestic financial markets,” he said.
He said that if needed, the BSP would step in and implement measures to ensure that the withdrawal of portfolio investments by foreign funds would not have any adverse effects on the real economy.
“The BSP has instruments in its tool kit to help ensure that any reversal in capital inflows will be manageable and will not create excessive volatility in the financial markets,” Tetangco said.