‘Hot’ money inflows increase fourfold

THURSDAY, 18 AUGUST 2011 19:52 JUN VALLECERA / REPORTER

THERE were twice as much gross-portfolio inflows as there were outflows in the first 32 weeks of the year and yet the flow of “hot” or speculative money proved four times higher on net basis to $2.79 billion.

The more than four-fold increase in hot money inflows highlights the increased challenge faced by central banks in Asia like the Bangko Sentral ng Pilipinas (BSP) who have to deal not only with prospectively stronger local currency but the fact of higher inflationary pressures as well.

According to the BSP, $10.8 billion or double the amount of portfolio funds flowed inward in the 32 weeks ending August 5 even as some $8 billion flowed out during the period as well.

This compared with year-ago gross inflows totaling $5.08 billion and gross outflows of another $4.42 billion.

Already, BSP Gov. Amando M. Tetangco Jr. said the heightened flow of foreign funds has made for “more challenging” policy crafting environment for the monetary authorities who have to ensure the inflation path does not push past the target ceiling of only up to five percent this year.

Inflation averaged only 4.3 percent in the year to July this year or well within target.

But because much of the additional liquidity coming into the system has not been used sufficiently for investment purposes, for instance, there is added pressure for prices to act up over the policy horizon.

Tetangco more recently gave assurance the flow of foreign capital will continue to be allowed to access the local market unimpeded.

He also said the local currency the peso, which averaged 3.4 centavos weaker on Thursday to P42.491 per dollar, will be allowed to seek its own level, with the BSP ensuring only against wild swings in the exchange rate from one end of the spectrum to another.

There was an earlier proposal for the government to adopt a tax mechanism on foreign capital, an idea that Tetangco subsequently rejected.

As for the inflationary impact of capital flows, Tetangco said there are continuing efforts to increase investment activities down the line such as the infrastructure-driven Public-Private Partnership program of government to ensure the liquidity in the system is put to productive endeavors.

Thus far, the structural and policy reform measures adopted earlier have proven adequate in ensuring sustained growth for the Philippines whose local output or the gross domestic product averaged 4.9 percent in the first quarter, Tetangco said.