Tetangco Says Rapid Capital Inflows May Create Asset Bubbles

The Philippines is focused on containing speculative inflows that threaten to create potential asset-price bubbles, and the central bank said it has participated in the currency market to restrain the peso.

“A clear and present concern is the impact of capital inflows,” Governor Amando Tetangco said in a speech in Manila today. The peso has advanced against the U.S. dollar as a result, and the “inflows could also feed credit booms, asset-price bubbles and other financial imbalances if these flows are not mostly absorbed by domestic productive activities,” he said.

Bangko Sentral ng Pilipinas followed policy makers in South Korea in clamping down on currency-forward positions. The Southeast Asian nation in December imposed a ceiling for non-deliverable currency forwards for local lenders at 20 percent of capital, and 100 percent for foreign entities.

The peso climbed 0.3 percent to 40.56 per dollar today, heading for its highest close since February 2008, according to Tullett Prebon Plc. It was the best performer in Asia last year after the South Korean won among 11 most-traded currencies tracked by Bloomberg.

Bangko Sentral has intervened to manage the peso, Tetangco said. Policy makers will keep the exchange rate market-determined and are not targeting a specific level, he said.

The economy grew 7.1 percent in the third quarter. The central bank can keep interest rates low in 2013 as inflation is likely to stay at the low end of the target range of 3 percent to 5 percent, Tetangco said. The monetary authority meets on Jan. 24 after holding borrowing costs at 3.5 percent last month.

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