MANILA, Philippines -The Philippines should remain a prime destination for capital flows despite risk aversion against emerging markets due to geopolitical risks abroad and the continuing divergence in monetary policy across economies, the Bangko Sentral ng Pilipinas said.
“I believe that at the end of the day, for the real money accounts, they will look at which countries have sound macroeconomic fundamentals, and the Philippines would certainly be on that list of real money investment destinations,” BSP Governor Amando M. Tetangco Jr. said.
Tetangco made the comment as the European Central Bank and the Bank of Japan ease policy measures to fight deflation and pump money into their economies, while the US Federal Reserve is widely expected to increase policy rates later this year.
“Markets look at interest differentials. Which markets have interest differentials in their favor are where capital would expectedly flow. But this is not the only factor that determines where funds will ultimately go,” Tetangco said.
Latest BSP data showed foreign portfolio investments amounted to a net inflow of $591.62 million in January, a reversal of the net outflow of $1.844 billion seen in the same month last year.
The bulk of the hot money inflows last month went into the Philippine Stock Exchange-listed securities, the central bank said, citing offerings and share sales of holding firms during the period.
Looking at the more permanent and job-generating foreign direct investments, the Philippines attracted in $5.719 billion in the 11 months to November last year, latest available data showed.
The central bank during its rate-setting meeting last week stressed it also takes into consideration monetary policy settings abroad to assess how this would impact domestic inflation and the economy as well.
Moreover, the BSP takes into account geopolitical risks that could heighten volatility in financial markets and the foreign exchange market.
According to Tetangco the ongoing Greek bailout talks and the continued Ukraine crisis are among the reasons behind the peso’s movements in recent days.
“The recent developments may have been part of the reason for some of the retracement in the EME (emerging market and economies) currencies in recent days. EME currencies lost some of the gains since the beginning of the year,” Tetangco said.
The peso closed at 44.24:$1 on Monday, stronger than its 44.285:$1 finish last Friday.
European Union finance ministers and the newly-elected government of Greece earlier this week failed to agree on a bailout plan, reports said. Greece rejected the extension of this financing deal which could cut Athens’ access to funds.
“Geopolitical risks, as well as developments in the EU area, are part of the information set we look at for setting policy,” Tetangco said.
“These risks create financial market volatility, and can also raise international commodity prices. We consider whether the effects of such developments are transitory or more permanent in nature and factor the assessment into our forecasts and ultimately our policy rate settings accordingly,” he continued.