Tuesday, 15 March 2011

BSP: Hot money still rising

by Roderick T. dela Cruz
Manila Standard

Gross inflows of foreign funds temporarily parked in local stocks and government securities nearly tripled in the first two months of 2011, sustaining the extraordinary growth seen last year.

Bangko Sentral reported over the weekend that gross inflows of foreign portfolio investments, also known as hot money, amounted to $2.971 billion as of Feb. 25 this year, up sharply from just $1.076 billion year-on-year.

This allowed the country to attract net inflows of $762.22 million in foreign funds during the period, up 147 percent from $308.71 million a year ago.

Gross outflows also surged to $2.2 billion as of Feb. 25 from $768 million booked during the same period last year, data showed.

The Philippines last year recorded a net inflow of $4.6 billion in foreign portfolio investments, as gross inflows reached a record $13 billion.

The higher inflows contributed to a balance of payments surplus of more than $14 billion in 2010 that helped push the gross international reserves past the $60-billion mark for the first time.

Despite its efforts to buy foreign exchange, the peso still managed to appreciate by around 5 percent against the US dollar last year.

ING Bank N.V. Philippines said if the shadow reserves from foreign portfolio investments were included in the official tabulation, the country’s total gross international reserves should top $80 billion.

Joey Cuyegkeng, chief economist of ING Bank N.V. Philippines, said Bangko Sentral embarked on a strategy to come in and out of the swap market in a bid to limit the impact of the foreign portfolio investments on liquidity.

“The Bangko Sentral with all its wisdom set aside it all these money and did not include them in official reserves. Bangko Sentral set aside something like $23 billion as of October 2010,” he said.

“So, our reserves are quite in the area of $80 billion,” he said. “Inadvertently, Bangko Sentral is liquifying the system, but not in the way that would affect inflation. They reduced the reason for the hot money to come in.”

A net inflow in foreign portfolio investments contribute to the appreciation of the stock index as well as the peso against the US dollar.

Most foreign funds are invested in shares listed on the Philippine Stock Exchange while others go to peso government securities and peso time deposits.

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