Net ‘hot money’ outflow reached $339.49M in March

More so-called “hot money” flowed out of the country in the fourth week of March following an interest rate increase in the US.

During the period March 1-24, foreign portfolio investments posted $1.06 billion in inflows, although outflows reached a higher $1.4 billion. As such, the first four weeks of the month yielded a net outflow of “hot money” worth $339.49 million.

During the week of March 20-24, the $489.2-million outflow was more than the $387.38-million inflow such that the $101.82-million net outflow was the biggest in six weeks.

“This is still largely a result of the rate hike of the US in March and expectations of two more rate increases this year from the US Federal Reserve,” Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said.

The 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 Trump’s promises to jack up infrastructure spending while slashing taxes are 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 $3.63 billion in foreign portfolio investment outflow exceeded the $3.19-billion inflow, resulting in a net outflow of $447.17 million as of March 24, a reversal of the $155.38-million net inflow a year ago.

For 2017, the BSP had projected portfolio investment to yield a net outflow of $900 million by yearend.

Foreign portfolio investments are in the form of placements in publicly listed shares, government and private sector IOUs and deposit certificates. These are considered short-term bets—hence the nickname “hot money”—because these placements may be pulled out quickly. BEN O. DE VERA