"Hot money" inflows to the Philippines tops $2 billion in early May

The inflow of foreign portfolio investments to the Philippines or “hot money” breached the $2-billion level as of the first week of May as foreign capital continued to flow to emerging markets including the Philippines due to economic uncertainties in advanced countries.

Latest data released by the Bangko Sentral ng Pilipinas (BSP) showed the net inflow of hot money reached $2.085 billion as of May 6 or 187 percent higher than the $725.55 million booked in the same period last year.

Hot money or speculative money that were invested mostly in shares listed at the Philippine Stock Exchange (PSE) as peso-denominated government securities surged 124 percent to $6.85 billion from $3.05 billion.

Major sources of foreign portfolio investments in the first four months included Singapore, US, United Kingdom, Luxemburg, and Hong Kong.

Foreign portfolio investments are also called hot money because they could be taken out of the country as quickly as they come in.

On the other hand, outflows consisting of withdrawals from interim peso deposits more than doubled to $4.76 billion from $2.33 billion.

Earlier, BSP Governor Amando M. Tetangco Jr. said foreign portfolio investments continued to flood emerging economies including the Philippines due to uncertainties in the economic recovery of economic superpowers such as the US, Europe, and Japan.

“Strong macroeconomic fundamentals buoyed the keen interest in portfolio investments to the country in 2011, in contrast to a year ago when uncertainties loomed in April, a month before the May 2010 Philippine elections, leading investors to remain in the sidelines,” Tetangco explained.

The inflow of foreign portfolio investments hit a new record level of $4.61 billion last year or nearly 12 times the $388.02 million in 2009 as funds continued to flood emerging markets including the Philippines due to the fragile growth in advanced economies led by the US and Europe.

Despite the strong inflows, monetary authorities said there is no need to constrict the strong inflows of foreign capital as the domestic economy could still absorb the inflows without stoking up inflation.

BSP Deputy Governor Diwa Guinigundo earlier told reporters that monetary authorities believe that the strong foreign exchange inflows into the country remains under control.

“We are always open to the conventional monetary tools after all they (inflows) have not reached that proportion where capital controls are made necessary,” Guinigundo stressed.

Guinigundo said the weaker than expected economic growth in advanced economies led by the US would serve as an impetus to further capital flows to emerging markets including the Philippines.

Strong capital inflows, he warned, could stoke up inflation through excessive liquidity in the financial system.

“That would warrant additional vigilance on the part of the BSP to make sure that they (capital inflows) do no exacerbate the levels of liquidity and fuel inflation in the future,” he explained.

However, he pointed out that conventional monetary tools are enough to address the current level of capital inflows into the country.

 

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