Foreign capital in the form of portfolio flows, also called “hot” money, continue to flow inward on net basis even though the volume of outflows or repatriation has gathered steam, as well.
Data obtained from the Bangko Sentral ng Pilipinas showed that gross portfolio outflows in the year to September 14 was up 6 percent to $11.081 billion from year ago of only $10.439 billion.
This represented an acceleration from outflows of only 5 percent just two weeks earlier to $10.542 billion from year ago of $10.015 billion.
This is significant on the part of the BSP whose mandate to keep the local currency the peso stable in relation to the US dollar compels it to “sterilize” the consequent injection of liquidity in the system.
The sterilization process is best illustrated by the capture of peso liquidity in the special deposit account (SDA) window of the central bank for which it pays a hefty interest to the banks that bring their excess funds to the facility.
Some P1.8 trillion worth of banks funds have thus far been effectively mopped off the system where they cannot possibly add to the BSP inflation worries given that inflation has acted up again, rising to 3.8 percent in September from 3.6 percent in August.
Inflation in October, BSP Governor Amando M. Tetangco Jr. said, was expected to average as low as 2.9 percent but could very well accelerate as high as 3.8 percent.
Tetangco raised the likelihood for inflation to remain benign over the next 18 to 24 months by scaling back the policy rates another 25 basis points just last week as well as moderate the cost of sterilizing captured liquidity known as SDAs safely within its vaults.
The cost of sterilization has been costly for the BSP having posted a net loss of P25.48 billion in the first four months this year alone.
This was on top of losses totaling P33.69 billion just last year and losses of another P59.04 billion in 2010.
Both Tetangco and BSP Deputy Governor Diwa C. Guinigundo shrugged off the string of losses as part of the cost of keeping prices stable across all parts of the country.
Both have stressed such losses were not operational losses but the price the BSP pays for ensuring that inflation, which punishes both lenders and borrowers, remain well within target.
Analysts at the global lender HSBC have said the most recent policy rate cuts did not only moderate the inflow of foreign capital into the country but afforded the BSP a measure of respite from having to pay an arm and a leg for ensuring SDA funds stayed where they are at present.
With the policy rates 25 basis points lower now than they were six weeks earlier, the BSP now pays for those same funds 25 basis points cheaper as well given that SDA funds are paid the policy rate plus a premium spread of a few basis points.
Portfolio inflows as of October 14 this year (37 weeks) stood almost 20 percent lower to only $2.619 billion from last year’s inflows totaling $3.269 billion as fund managers repatriated some of the earnings generated from exposure in the local stock as well as fixed-income markets.
The bulk of portfolio investments were for the purchase of peso debt papers and equity stocks traded at the Philippine Stock Exchange, the BSP said. –Jun Vallecera / Reporter, Businessmirror
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