Fed hike prompts ‘hot money’ to leave PH

More “hot money” flowed out of the country during the first two weeks of December, ahead of the anticipated US Federal Reserve rate hike that pushed through during the middle of the month.

The latest Bangko Sentral ng Pilipinas (BSP) data released Friday showed that on Dec. 1-2, the country posted a net outflow of foreign portfolio investment amounting $46.35 million, as the $149.25 million in outflows exceeded the $102.9 million in inflows.

During the week of Dec. 5-9, another net outflow of $59.49 million was registered, as the $377.08-million outflow was more than the $317.58-million inflow.

Inflows cut

Year-to-date, the net inflow of foreign portfolio investment narrowed to $613.24 million.

As of Dec. 9, a total of $16.99 billion in foreign portfolio investments came in, outpacing the $16.377-billion worth of outflows.

The year-to-date inflow reversed the $703.96-billion net outflow last year.

Last year, both the inflows and outflows were bigger as of Dec. 9, at $19.296 billion and $20 billion, respectively.

On Dec. 14, the policy-setting Federal Open Market Committee unanimously voted to raise the key federal funds rate to a range of 0.5-0.75 percent, only the second time that US interest rates were increased during the last 10 years following a similar move in December last year.

Next Fed action

US Fed officials expect three more hikes next year to bring up the rate to 1.4 percent by end-2017, as US President-elect Donald Trump’s promises to jack up infrastructure spending while slashing taxes are seen to push inflation faster.

In November, the country recorded a net outflow of hot money worth $607.31 million, as the month’s outflow of $1.797 billion dwarfed the $1.19-billion inflow.

Many investors pulled out hot money last month amid uncertainty brought about by Trump’s victory in the Nov. 8 US polls, hence reversing the net inflow of $59.87 million posted last October.

Foreign portfolio investments are in the form of placements in publicly listed shares, government and private sector IOUs, and deposit certificates.

Portfolio investments are considered short-term bets— hence the term “hot money”—because these placements may be pulled out quickly.

By yearend, the BSP expects foreign portfolio investment to settle at a net outflow of $1.1 billion.

Next year, outflows are expected to outstrip hot money coming in for a total net outflow of  $900 million.