More ‘hot money’ left PH in March

More so-called “hot money” left the Philippines during the first 17 days of March as foreign investors pulled out funds in anticipation of the US Federal Reserve’s interest rate increase.

During the period March 1-17, foreign portfolio investments posted $670.3 million in inflows, but outflows reached a higher $907.97 million. As such, the first three weeks of the month yielded a net outflow of hot money worth $237.67 million.

Foreign portfolio investments are in the form of placements in publicly listed shares of stock, 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.

Land Bank of the Philippines market economist Guian Angelo S. Dumalagan attributed the net outflow of “hot money” in early March to “caution ahead of the March interest rate decision of the US Federal Reserve.”

“Market participants then were expecting not just a rate hike from the US central bank but also an increase in the path of US interest rate normalization. The hawkish comments from policymakers prior to the US monetary policy meeting amplified the amount of net outflows,” Dumalagan noted.

The US Fed on March 15 raised its overnight rate by 25 basis points to a target range of 0.75-1 percent—expected to be the first of three rate increases this year to bring up the rate to 1.4 percent by year’s end as US President Donald J. Trump’s promises to jack up infrastructure spending while slashing taxes were seen to grow inflation faster.

In December, 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 2015.

Year-to-date, the $2.8 billion in foreign portfolio investment outflow exceeded the $3.14-billion inflow, resulting in a net outflow of $345.35 million as of March 10.

In February alone, registered portfolio investment declined on concerns over the Department of Environment and Natural Resources’ order to shut down a number of mines, resulting in a net outflow of $409.01 million.