Philippine demand for capital goods imports, spurred by faster economic growth, may help counter the effect of surging inflows of funds from abroad and cool the peso’s gains, central bank Assistant Governor Cyd Amador said.
“The peso could likely move within a narrower range, be more stable and less volatile,” Amador said in an interview yesterday in Davao City. “On the one hand, the country’s bright growth prospects and expectations of its continuing strength could serve to draw in more foreign money. On the other hand, import requirements of the economy could rise as public and private investments increase.”
Monetary easing from Japan to the U.S. has spurred demand for higher-yielding assets and boosted inflows into emerging markets, prompting policy makers to take action. Bangko Sentral ng Pilipinas Governor Amando Tetangco said last week he’s studying more measures to counter the impact on the nation’s currency and economy. Banco de Mexico Governor Agustin Carstens said yesterday that capital flows to emerging markets and some advanced nations may lead to asset bubbles.
“The strength of the peso is a reflection of an economy that’s increasingly showing better fundamentals,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “The pressure on the peso to strengthen is fairly strong and the central bank had said that measures they have implemented are meant to curb large swings, but not reverse a trend.”
The peso was little changed at 40.648 per dollar at 10:51 a.m. local time, and is the top gainer in the past 12 months among 25 most actively traded emerging-market currencies tracked by Bloomberg. It will strengthen to 39.6 per dollar by the end of the year, according to the median in a Bloomberg survey.
The economy expanded 6.8 percent last quarter from a year earlier, beating analysts’ estimates. Gross domestic product rose 6.6 percent in 2012, among the fastest growth rates in Asia.
The central bank forecasts imports to climb 12 percent this year. Imports gained 1 percent in the January-to-November period in 2012, with purchases of capital goods rising 11.4 percent.
The government plans to sell more debt in the domestic market and keep buying dollars from the central bank to help temper the peso’s gains, Finance Secretary Cesar Purisima said separately in Davao City yesterday.
“The reserves of the central bank are at historic highs and the local market is awash with liquidity,” Purisima said in an interview. “Therefore, it makes sense for us to tap the local market to reduce pressure on the peso. We borrow locally, then buy dollars from the central bank,” he said.
Last year, Bangko Sentral announced limits on lenders’ currency forward positions, banned overseas funds from special accounts and expanded monitoring of banks’ real-estate exposure as it stepped up efforts to curb capital inflows. Last month, it cut the rate on its special deposit accounts while holding its benchmark rate at a record-low 3.5 percent.
“We will be creative and nimble in our policy actions while at the same time also circumspect in our choices,” said Amador, who was at a development forum as part of a government plan to draw investors to southern provinces after a peace deal forged by President Benigno Aquino last year with Muslim rebels. “We will deploy tools depending on the magnitude and gravity of the issue and on the circumstances facing the economy.”
Measures other than interest rates have to be used as emerging-market economies try to curb volatility, sustain growth and keep prices stable, Tetangco said last month. Inflows pose a risk to price gains, the central bank said yesterday, after data showed inflation accelerated to a three-month high in January.
Aquino is increasing spending to a record this year while seeking more than $17 billion of investments in highways and airports to spur growth to as much as 7 percent in 2013. Standard & Poor’s in December raised the country’s sovereign rating outlook to positive, citing improved governance and public finances, bringing it closer to investment-grade status.
San Miguel Corp., the nation’s biggest company by sales, said this week it plans to invest $35 billion in the medium-to- long-term. The nation’s growth is boosting company profits and helping stocks surge to a record. Portfolio inflows climbed to $1.86 billion from Jan. 1 to Jan. 18, more than double from a year ago, and climbed to $18.5 billion in 2012, a 10-year high.
Philippine outsourcing companies have called on policy makers to curb gains in the currency to sustain competitiveness. Other emerging markets have also expressed concern, with South Korea Deputy Finance Minister Choi Jong Ku saying last week authorities should consider taxes on currency trading and bonds.
Thailand will set up a team of economists, including central bank Governor Prasarn Trairatvorakul, to study how to respond to short-term capital inflows, Finance Minister Kittiratt Na-Ranong said last month. The country won’t impose capital controls or tax measures to curb fund flows, he said.
While concerns are shared, a common regional approach to tackle capital inflows is unlikely, Amador said.
“We have varying conditions and country-specific circumstances,” Amador said. “Our peer interactions are meant to learn from each other’s experiences and to distill insights that we can use to inform our own domestic policy formulation, implementation and assessment.”