Phl not expected to experience capital outflow due to ECB move

MANILA, Philippines - The country is not expected to experience a surge in capital outflows following the European Central Bank’s move to cut interest rates and start asset purchases, the Bangko Sentral ng Pilipinas said yesterday.

“Our own fundamental story remains in tact, we don’t expect significant outflows as a result of the latest ECB action,” BSP Governor Amando M. Tetangco Jr. said in a text message to reporters.

“Over the medium term, to the extent the ECB move is successful in arresting deflationary pressures in the EU, we could see more stability in the financial markets also,” he said.

The ECB yesterday cut its already low benchmark and deposit rates by 10 basis points, putting the latter into negative territory. The benchmark rate now stands at 0.05 percent, while the deposit rate is at -0.2 percent.

“The ECB move weakened the euro, affecting regional currencies with it. We could see portfolios further rebalance towards the USD (US dollar),” Tetangco noted.

The ECB has also announced it would purchase assets to boost the euro zone’s sagging growth.

Joey Cuyegkeng, economist at the ING Bank (Manila), said in a commentary the ECB move may partially offset the US Federal Bank’s unwinding of asset purchases and eventual increase in interest rates.

 “ECB has also surprised with a cut in the policy rates and the launch of  an Asset-backed Security purchases to provide significant liquidity in euro zone over a period of time. This may partially offset the financial market impact of the  normalization of US monetary policy,” Cuyegkeng said.

 “As US tightening starts and proceeds, US interest rates would have some impact on our financial markets - specifically peso and dollar bonds and indirectly our local currency bonds. Offsetting such actions may present a difficult balancing act for EM (emerging market) central banks including our BSP,” he added.