The quantitative easing (QE) program announced by the European Central Bank (ECB) would mean additional portfolio inflows to emerging markets like the Philippines, an official of the Department of Finance (DOF) said on Tuesday.
Finance Undersecretary and chief economist Gil S. Beltran said in an economic bulletin that ECB’s QE
program will generate additional portfolio inflows although at a lower level than what the US QE program had generated for emerging markets like the Philippines.
“The ECB QE program will generate additional portfolio flows equivalent to a fraction of the levels that benefited the country under US QE program. It will probably approximate the net portfolio flows from EU [about 2 percent of GDP annually or $3B] from 2007 to 2009, the only years when EU data are available from the BSP,” Beltran said.
ECB President Mario Draghi said the ECB’s QE program will consist of a monthly release of €60 billion from March 2015 to September 2016.
This would amount to some €1 trillion that the ECB would have spent buying securities such as sovereign bonds and injecting liquidity to the economy to stave off fears of deflation and revive the European economy.
Beltran said that while the effectiveness of QE and its effects are debatable, the effects on the Philippines of the US QE program can provide a glimpse of what the ECB’s QE program would have in store for emerging markets (EM).
He also noted that when the US QE had tapered off, the result was the outflow of portfolio investments from the Philippines, which resulted in a net outflow of $300 million in 2014.
“For emerging markets, the US QE policy has translated into hot money inflows. The low American interest rates have also exerted pressure on EM currencies to appreciate. In EMs themselves, interest rates have been kept low,” Beltran said.
The tapering of the US bond-buying program also resulted in an outflow of portfolio investments last year. Beltran said net inflows in 2014 plunged by nearly a quarter to $21.8 billion. This decrease in inflows resulted in the country seeing net outflows of portfolio investments of $300 million.
ECB’s Draghi committed to a QE program to counter the threat of a deflationary spiral in the euro zone.