Milder inflation boosts ‘hot money’ inflows

MANILA  -More short-term foreign funds entered the country in November against those that left, posting their biggest net inflow in four months and reversing October’s net outflow as easing inflation uplifted investor sentiment.

Foreign portfolio investments (FPIs) recorded a net inflow of $673 million last month, a turnaround from $328-million net outflows in October, the Bangko Sentral ng Pilipinas (BSP) reported on Thursday.

Data showed this was the best reading since the $962-million net inflow back in July. Since the beginning of the year, FPIs yielded a net outflow of $42 million, a reversal from last year’s net inflow of $794 million.

Broken down, gross inflows in November jumped by 65 percent month-on-month to $1.6 billion, with 71.4 percent of new FPIs going to government securities like Treasury bonds and Treasury bills. The rest was invested in the local stock market and other instruments.

Gross outflows, meanwhile, amounted to $902 million, down by 29.7 percent from October. Figures showed the United States remains to be the top destination of capital flight last month.

Calming nerves

Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), said the milder inflation uptick at home and abroad helped calm investor nerves.

READ: PH inflation slows further, moves closer to target

“The worst has been seen already in the US and local financial markets in October and started to post hefty gains since November,” Ricafort said in an emailed commentary.

Also known as “hot money” because of their flighty nature, FPIs are highly sensitive to developments onshore and offshore unlike firmer commitments such as foreign direct investments.

This year, the BSP projected a net inflow of $1 billion which, if realized, would be unchanged from the 2022 figure.

Government data showed inflation softened for the second straight month in November at 4.1 percent, inching closer to the BSP’s 2- to 4-percent target range. Still, the central bank said monetary authorities “deems it necessary to keep settings sufficiently tight until a sustained downtrend in inflation becomes evident.”

US rate cuts

For RCBC’s Ricafort, expectations of rate cuts in the United States in 2024 would ease the pressure on the BSP to keep its ultra-tight monetary policy settings for much longer, something that could boost hot money inflows in December.

READ: With rate hikes likely done, Fed turns to timing of cuts

However, he warned of upward price pressures from a prolonged El Niño dry spell and rising global rice prices.

“For the coming months, hot money data could improve after better-than-expected local [gross domestic product] and inflation data since November,” Ricafort said. —Ian Nicolas P. Cigaral INQ