Although most central banks in the region have since made interest-rate adjustments, foreign investors continue to place their funds in the Philippines, which only reinforced the economic managers’ confidence that the $272-billion economy remains attractive to offshore investors.
Bangko Sentral ng Pilipinas (BSP) data show that as of the week ending March 13, 2015, the Philippines registered a net inflow of foreign portfolio investment, or “hot” money, dubbed due to the speed it comes in and out of the economy, of $1.75 billion.
This represented a reversal from $1.89-billion net outflows in the week ending March 14, 2014.
Central bank officials believe that no matter the widely anticipated normalization in United States interest rates this year, foreign investment inflows to the Philippines should remain strong. Normalization in this case pertains to an upward adjustment in US interest rates to ensure continued growth, as the world’s largest economy endeavors to build on its successes following six years of economic decline.
In its Report on Economic and Financial Development for the last quarter of 2014, the BSP said the growth-sapping impact on inflows of any interest-rate normalization in the US may be muted and compensated for by the accommodative monetary policies in Japan and the euro-zone countries. The central bank report said emerging markets (EMs), including the Philippines, “could face a reversal in capital flows and exchange rate pressures,” as well as tighter financial conditions because of the projected volatilities in the global financial markets.
This volatility, it said, will likely affect real sector activity through increased risk aversion, sharp increases in long-term interest rates, tighter access to external financing, and possible foreign-exchange market pressures. ”The potential adverse impact of the Fed’s monetary normalization on liquidity, interest rates and capital flows could be counterbalanced, although not completely offset, by the continued accommodative monetary policy in the euro area and Japan,” it said.
Philippine monetary officials have continuously stressed that the domestic economy has the capacity to remain resilient given the measures that have been put in place.
For one, the central bank’s policy rates remain low, with the overnight borrowing or reverse repurchase (RRP) rate at only four percent and the overnight lending or repurchase (RP) rate at 6 percent.
The BSP is among the few central banks in the region that has not increased it key rates even as its counterparts overseas have raised their respective rates. BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo recently said they see no need to increase the key rates since inflation remains low and domestic demand remains robust. ”The economy hardly needs it,” he said.
PNA