BSP sees return of capital flows

MANILA, Philippines - The Philippines should see a return of capital flows given its strong macro fundamentals despite expected volatility in financial markets following the US Federal Reserve’s move, a Bangko Sentral ng Pilipinas official said.

BSP Deputy Governor Diwa C. Guinigundo said that the volatility in financial markets is largely driven by sentiment as investors take in the end of the US Fed’s monthly asset purchases announced last week.

“Some market players… could have moved out their funds even earlier and that could be the underlying reason why you have such volatility even if Philippine market fundamentals will continue to support a broadly stable movement of the peso,” Guinigundo said.

“But once this sentiment has run its course then we should expect greater stability in the foreign exchange market,” he added.

Philippine economic growth accelerated by 6.4 percent in the second quarter from 5.6 percent in the first quarter. This brought first-half expansion to six percent, still below the government’s target of a 6.5 to 7.5 percent growth.

The country’s current account, an indicator of the economy’s health, has remained in surplus amid the robust exports, tourism receipts, income from the business process outsourcing sector, and remittances.

“Nothing has changed, it’s only the sentiment of the market that’s a little sour. People are prepositioning on the basis of these sentiments but sentiments can always change but what is important is the solid macroeconomic fundamentals of the Philippines,” Guinigundo said.

Last week, the US Fed said it will finally put an end to its bond-buying program as growth prospects for the US economy now turn rosy. The massive monthly asset purchases were introduced following the financial crisis of 2008 in order to pump money in the US economy.