Net ‘hot money’ totaled $4.52B as of Dec. 17

Net inflow of foreign portfolio investments or ‘hot money’ stood at $4.52 billion two weeks before 2010 ended – almost a dozen times larger than the $388.02 billion in the same period in 2009, said the Bangko Sentral ng Pilipinas (BSP).

The central bank said this weekend that the surge in hot money inflows can be attributed to the continued stream of funds from developed economies such as the US and Europe to emerging markets in Asia, including the Philippines.

Hot money refers to funds that are controlled by investors who actively seek short-term returns. These investors scan the market for short-term, high-interest-rate investment opportunities.

The BSP pointed out that the net inflow of foreign capital has strengthened the value of the peso and boosted the growth of the Philippine economy.

Monetary authorities said they want to see flowing into the country more foreign direct investments (FDIs) than hot money. FDIs refer to long-term investments from one country to another.

Increasing volume of FDIs would help cement the country’s reputation as an investment destination, the central bank said.

The BSP believes that hot money would continue to flow into the country as developed economies present inferior returns for their trouble.

This outlook made it unlikely for the Monetary Board to tweak its current policy stance, where overnight borrowings stand at 4 percent and lending rates at 6 percent.

BSP Governor Amando Tetangco Jr. has said that the central bank’s main focus is to optimize the growth potential of the country’s economy and keep prices steady for as long as possible.

The BSP is not expected to raise interest rates anytime soon since inflation last year “landed near the low end of the target range.” Philippine inflation averaged 3.8 percent last year.

However, Swiss-owned investment bank UBS said on Friday that the central bank may tweak its key policy rates starting Q2 of 2011. – MRT/KBK, GMANews.TV