Capital inflows still a concern for BSP

MANILA, Philippines - Capital inflows remain a top concern for the Bangko Sentral ng Pilipinas (BSP) despite the recent financial market volatility caused by huge outflows back to the US, a report released last Friday said.

“Of particular challenge moving forward is the continued surge in capital inflows in the country, which has pushed up the peso further against the dollar,” the BSP said in its Report on Economic and Financial Developments.

Foreign capital could remain “attracted” to the Philippines, it said, especially after the country bagged investment grade ratings from Fitch Ratings and Standard & Poor’s Ratings Services in March and May, respectively.

“Against this backdrop, the BSP stands ready to employ from its menu of policy instruments, measures that will help ensure that the benefits of capital flows are maximized while warding off potential destabilizing impact,” the central bank explained.

Among others, the BSP has vowed to “guard” against speculative flows that could feed in the strength of the peso in the long run. The foreign exchange though will remain “market-determined.”

The peso, Asia’s second best performer last year, has lost 6.5 percent of its value against the greenback since it last traded in 2012. It ended trading at 43.72 to a dollar on Friday.

That, and a local bourse plummeting by as much as 6.5 percent at one point, was the result of investor concerns cheap money emanating from US stimulus measures will be scaled back later this year.

“Amid downside risks to global economic prospects on the horizon, contingency measures are in place to ensure adequate liquidity in the financial system should capital flows reverse course,” the central bank said.

“The BSP will maintain a comfortable level of international reserves to serve as added insurance against external shocks,” it added.

The full capitalization of the BSP— P10 billion has yet to be given by the government— will also be “pursued,” it said, together with a renewed push for Congress to amend its 20-year-old charter.

For its part, BPI Asset Management said in a separate report it “does not expect this volatility to stabilize soon.”

This prompted the Ayala-led unit to lower its yearend projection for the peso-dollar exchange rate to a range of 41.50-42 from 40-40.50 originally.

The local stock index, meanwhile, is still expected to recover toward record-levels of 7,500 to 7,700, although it may do so “in the next six to 12 months” from the original “by yearend.” It closed at 6,182.17 last Friday.