‘Hot money’ outflows rise after US Fed rate hike

More so-called “hot money” fled the country in the third week of December when the US Federal Reserve hiked interest rates.

The latest Bangko Sentral ng Pilipinas report on foreign portfolio investments, which was released on Thursday, showed that on Dec. 12 to 16, the country posted a net outflow of hot money amounting to $15.18 million, as the $277.5-million outflow exceeded the $262.32-million inflow during the week.

Year-to-date, the net inflow of foreign portfolio investment further narrowed to $598.06 million.

As of Dec. 16, a total of $17.252 billion in foreign portfolio investment came in, outpacing the $16.654-billion worth of outflows.

The year-to-date inflow nonetheless reversed the $762.73-billion net outflow a year ago.

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 2015.

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 will trigger faster acceleration of inflation.

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 nickname hot money—because these placements may be pulled out quickly.

The BSP expects foreign portfolio investment to settle at a net outflow of $1.1 billion at end-2016.

For this year, the BSP had projected hot money to remain at a net outflow of a nonetheless smaller $900 million.