PH not mulling holding period for portfolio flows - BSP

Reuters

Posted at Dec 20 2012 12:41 PM | Updated as of Dec 20 2012 08:41 PM

MANILA - The Philippine central bank is not considering imposing a mandatory holding period for foreigners' portfolio investments as a way to control strong capital inflows that have made the peso outperform most Asian currencies this year, the governor told Reuters.

The governor made the comment ahead of a regular weekly meeting of the bank's Monetary Board later on Thursday, which is expected to include on its agenda the question of how to manage the inflows.

The surge of foreign funds into the Philippines has driven a 30 percent rise in the stock market index so far this year, making it Asia's second best performing bourse, and led to the peso appreciating 7 percent against the dollar. Among Asian currencies only the Korean won has gained more.

"Not thinking of holding period," Governor Amando Tetangco told Reuters in a mobile text message late on Wednesday when asked if the central bank was looking at such a measure on portfolio investments.

The central bank said early this month it was considering limiting currency forward positions that banks are allowed to hold to tackle speculation in the foreign exchange market.

Net foreign portfolio investments hit $1 billion in November alone, the highest in two years, bringing net inflows so far this year to $3.7 billion pesos, just a shade below the central bank's $3.8 billion forecast for the year.

Foreign investors have been attracted to the Philippines, due to strong domestic demand and higher state spending that have lent the Southeast Asian economy resilience in the face of slowdowns in key export markets in China, Europe and the United States.

Deputy Governor Diwa Guinigundo had said on Tuesday that a holding period on portfolio investments "is just an option", but the governor's latest comment suggested it was not being actively considered.

Earlier this month, a local newspaper quoted Felipe Medalla, former economic planning chief and a member of the policymaking Monetary Board, as saying the central bank was studying a 90-day holding period for hot money flows.

Monetary authorities have said they consider capital controls as "measures of last resort", adding they have tools other than the policy rate, such as macroprudential measures, to manage the impact of inflows on the economy.

In July, the central bank tightened rules on its short-term special deposit account (SDA) window to keep foreign funds out of the facility that had attracted record high volume, and lowered the rate it pays on the instrument.

Last year, the central bank also raised a capital charge on non-deliverable forwards to curb currency volatility.

A benign inflation outlook allowed the central bank to cut its key policy rate by a total 100 basis points to a record low of 3.5 percent, to help boost domestic demand in the face of a global economic slowdown and contain the peso's strength.