‘Hot money’ outflows widened to $367M in Sept

The net outflows of short-term foreign investments or “hot money” widened in September to $367 million, the worst in five consecutive months of outward streams that started after a net inflow of $1.5 billion in April.

Also, Rizal Commercial Banking Corp. chief economist Michael Ricafort observed that the September readout was the worst in more than a year or since April 2021, when outflows were greater than inflows by $374 million.

Ricafort also noted that September net outflows were worse than the $86.3 million recorded a month earlier in August as well as the $24.2 million recorded a year ago in September 2021.

He said monthly net outflows widened as there was increased market volatility in September amid continuing concerns about high inflation, weaker peso and the rising trend in interest rates that increased borrowing costs.

Still, the Bangko Sentral ng Pilipinas (BSP) said on Thursday that the results for September brought the cumulative amount of BSP-registered foreign investments in the first nine months of 2022 to net inflows of $221.6 million.

Nine-month net inflows meant a turnaround from the net outflows of $494.1 million in the same period last year.

In September, $1.3 billion in BSP-registered short-term investments flowed out of the country while $892 million flowed in.

Gross outflows in September surged by 43 percent or $381 million from $878 million in August.

Close to three-quarters or 72.5 percent of foreign investments withdrawn from the Philippines in September went to the United States.

At the same time, inbound capital grew by 13 percent from $792 million in August.

About nine-tenths or 87 percent of gross inflows in September were invested in Philippine Stock Exchange-listed securities issued by companies in electricity, energy, power and water; food, beverage and tobacco; property; and banks, as well as those operating as holding firms.

About an eighth or 13 percent was lent to the government through investments in peso-denominated state securities.

Policy rate

In September, 80 percent of gross inflows came from Singapore, the United Kingdom, the United States, Luxembourg and the British Virgin Islands.

He added that the BSP raised its policy rate by a total of one percentage point (ppt) in August and September while the United States Federal Reserve did so by 0.75 ppt in September.

The US Fed’s move “led to the stronger US dollar against Asian currencies as higher US interest rates increase the attractiveness of the US currency in terms of higher interest rate income on US dollar-denominated fixed income investments,” Ricafort said.

More recently, the BSP has sent signals that it will prevent the peso from weakening too much by intervening in the foreign exchange market as well as through increases in the policy rate totaling at one ppt over the next two months.

“Recent signals of a local policy rate hike of as much as 0.75 ppt on the next rate-setting meeting on Nov. 17, 2022 or at least one ppt for the rest of 2022 are among other measures that would help stabilize the peso exchange rate and overall inflation,” Ricafort said.