MANILA, Philippines - Capital controls are still off the table even as investors continue to leave the country, the Bangko Sentral ng Pilipinas (BSP) chief assured.
Late Monday, BSP Governor Amando Tetangco Jr. said the central bank is “not looking at capital controls†to temper the slump in the financial markets driven by worries the US would scale back its stimulus measures soon.
Earlier this year, the idea of capital controls was floated, that time to manage the reverse: large inflows flocking to emerging markets which could stoke inflation and asset bubbles in the long run.
But after the US Federal Reserve said it may taper off its quantitative easing measures “later this year,†investors have begun leaving developing nations on optimism interest rates would soon rise in the world’s largest economy.
The actions of investors caused the Philippine Stock Exchange index, one of the world’s best last year, to lose 3.05 percent yesterday and close at 5,789.09, totally wiping out gains this year.
The peso, meanwhile, slumped to its weakest level in 17 months to end trading at 43.84 versus the greenback last Monday. The local unit appreciated by 38 centavos to close at 43.46 against the US currency yesterday.
On Saturday, BSP deputy governor Diwa Guinigundo said the country would “maximize the returns†of its foreign reserves to have enough buffer to cushion outflows.
For her part, BSP assistant governor Ma. Cyd Tuano-Amador said the weakening of the peso has limited effect on consumer prices, and thus will have limited effect on inflation.
Inflation hit 2.6 percent in May, below the central bank’s three- to five-percent target range for the year, with the five-month average fall at the low-end of that range.
“The exchange rate pass through has already gone down. I think there was also a credibility earned by the central bank in maintaining broad back economic stability,†Amador said last Friday.
Sought for comment, Emilio Neri Jr., lead economist at Bank of the Philippine Islands, said lower pass-through effect means consumption and investment are not affected entirely by a weakening peso.
“For one, a weak peso gives more value to remittances which would then translate to more purchasing power,†Neri said in phone interview.
“As to imports, for instance in oil, a weak peso may not just prompt them to raise prices since they also have to worry about competition,†he added.