BSP ready with tools to head off inflation

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has the proper monetary tools in place to counter any inflationary pressures that may arise because of the expected influx of foreign portfolio investments or “hot money” into the country, BSP Governor Amando M. Tetangco Jr. said yesterday.

“Should the reflow of foreign capital pose challenges to liquidity management, we have the tools in place to ensure that it does not create inflationary pressures,” Tetangco said.

“Prudent macroeconomic policies and careful communication with the markets and the public will continue to be the key elements of our policy responses,” he added.

Net foreign direct investments ballooned to $533 million in July, indicating continued investor confidence in the Philippines.

Meanwhile, foreign portfolio investments are likely to record a net inflow in September, a reversal of a net outflow in the previous month.

Tetangco made the comment following the expected influx of portfolio investments into the country amid the fiscal impasse in the US and the announcement of the US Federal Reserve that it will keep its stimulus intact.

A surge in capital flows to the country last year prompted the BSP to introduce measures to ensure they will not cause wild swings in the local currency or too much volatility in financial markets.

“Inflation management remains our top policy priority because safeguarding price stability is our primary mandate as the country’s monetary authority,” Tetangco said.

Inflation stood at an average rate of 2.8 percent as of September, below the BSP’s three-to five- percent target for 2013.

Aside from capital inflows, Tetangco also said the continued growth in domestic liquidity won’t significantly impact on inflation.

“BSP forecasts indicate that M3 growth could continue to remain solid over the near term due to the SDA (Special Deposit Accounts) operational adjustments. However, the forecasts also indicate that M3 growth would moderate after some time, and thus not pose a threat to the price stability objective,” Tetangco said.