The Philippines will implement a new measure to deal with “risk sensitive” capital inflows, as interest-rate reductions alone are no longer enough, central bank Governor Amando Tetangco said. Stocks and the peso fell.
“We will announce at least one new measure before year-end,” Tetangco said in a phone interview today. He earlier told Bloomberg TV that it’s “hard to say” whether the Philippines is at the end of a rate-cut cycle and that evenly balanced inflation risks give policy makers room to keep borrowing costs at a record-low 3.5 percent.
Bangko Sentral ng Pilipinas has cut the overnight rate by a total 100 basis points this year to bolster growth. It held borrowing costs yesterday after the economy expanded 7.1 percent last quarter, the fastest pace in Southeast Asia, helping lure investors and propel the peso to its strongest level since March 2008 last month and stocks to a record this week.
The Philippine Stock Exchange Index fell for a third day, losing 1.5 percent as of 3:06 p.m. in Manila, poised for the sharpest loss since July 9. Ayala Land Inc., the biggest builder, and SM Investments Corp., owner of the nation’s largest bank by assets, fell more than 2.7 percent each.
The peso slipped a fifth day, heading for its biggest weekly decline in four weeks. The currency dropped 0.1 percent to 41.11 per dollar, data from Tullett Prebon Plc showed.
“We want to ensure continuity of monetary and financial stability while discouraging regulatory arbitrage,” Tetangco said when asked to elaborate on the plan. “We will definitely consider more macro prudential measures as needed.”
Bangko Sentral has banned overseas investors from its special-deposit accounts and ordered lenders to provide more funds to cover risks on non-deliverable currency forwards. Other measures being considered to curb inflows include new limits on currency forwards and a review of their risk premiums, Tetangco said on Dec. 3. Capital controls won’t be necessary at this stage, he said this month. He declined to elaborate today.
South Korea tightened limits on the amount of foreign-exchange forward positions banks are allowed to hold from Dec. 1 as gains in the won, the region’s best performer this year, threaten the nation’s overseas sales. The peso’s rise is a worry and will hurt exporters and overseas remittances, Economic Planning Secretary Arsenio Balisacan said on Nov. 28.
“They are trying to slow down the appreciation of the peso even though they have already done a good job at it,” said Allan Yu, who helps manage about $10.3 billion at Metropolitan Bank & Trust Co. in Manila. “Slowing currency gains will help the exports sector and preserve the value of remittances.”
Bangko Sentral expects stronger inflows from remittances, exports and investments in the coming year, Deputy Governor Diwa Guinigundo told reporters yesterday. Net investments in stocks, bonds and deposits are projected to rise to $3.8 billion in 2013 from $3.2 billion this year, while net foreign direct investments are estimated at $2.2 billion next year, he said.
Remittances from Filipinos overseas and receipts from outsourcing companies are structural flows, Tetangco said today. “For these, we can accommodate some appreciation in the currency,” he said. “Risk-sensitive flows, however, would require macro prudential measures.”
Shares on the Philippine benchmark index traded at 18.7 times reported earnings on Dec. 11, the highest since January 2004. Today, shares are trading at 18.35 times reported earnings, the third-most expensive in Asia.
The $225 billion economy expanded at the fastest pace since 2010 last quarter. Inflation slowed to 2.8 percent in November from a year earlier, a five-month low. BSP targets price gains to average 3 percent to 5 percent in 2012 to 2014.
“The strong third-quarter gross domestic product number did surprise and indicates there’s less need to support the economy with monetary stimulus for now,” Tetangco told Bloomberg TV. “If this balance stays, then we think we have room to keep rates at current levels. We will not hesitate though, to make adjustments as appropriate to keep the economy on the path of strong growth and keep prices stable.”