Philippines Acts to Slow Flows as Singapore Sees Spillovers

The Philippines will further limit access to its special deposit accounts to curb capital inflows, as Singapore says emerging Asian nations have to deal with spillovers from loose monetary policy in advanced economies.

Starting 2014, access by trust entities to SDAs will be limited as Bangko Sentral ng Pilipinas banned so-called investment management activities, a type of account handled by trust departments, it said on its website today. Asia’s emerging markets “need macro-prudential policies to avoid asset market bubbles from building up” as capital inflows rise, Singapore Finance Minister Tharman Shanmugaratnam said separately.

Asia’s policy makers are battling capital inflows, with Thailand’s government calling for a rate cut to curb gains in the baht that surged to a 16-year high in April. In the Philippines, which won its first investment-grade ranking from Fitch Ratings and Standard & Poor’s this year, the funds have boosted the peso and sent stocks to a record-high this month.

“BSP continues to fine-tune the SDA to try and limit the possibility of offshore money finding its way into the facility,” said Prakriti Sofat, a Singapore-based regional economist for Barclays Plc. “I won’t be surprised if the central bank announces more measures.”

Philippine bonds due December 2035 fell, with the yield rising 2.5 basis points to 4 percent, according to Tradition Financial Services. The peso closed little changed at 41.188 per dollar in Manila. It is the third-best performer in Asia in the past 12 months, data compiled by Bloomberg show.


Bangko Sentral ordered the phase-out of at least 30 percent of the covered trust accounts by July 31 and for the remaining balance to be removed by November 30, according to a memorandum on its website.

The central bank cut the rate on SDAs three times this year to 2 percent, after banning foreign funds from the facility in 2012. The Singapore government has introduced seven rounds of property curbs in about four years to cool record prices.

“We have to accept the fact that monetary-policy setting in a part of the world that is growing at low speed or no speed is unsuitable for a part of world that is growing at a relatively good speed,” Shanmugaratnam said in Singapore today. “We have to deal with the consequences because it brings capital our way and it also leads to risk appetite shifting.”

Keep Buying

The U.S. Federal Reserve this month said it will keep buying bonds at a monthly pace of $85 billion while standing ready to raise or lower purchases as economic conditions evolve. It reiterated plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.

The European Central Bank cut its key interest rate to a record low of 0.5 percent this month, while the Bank of Japan decided last month to double debt-buying to more than 7 trillion yen ($68 billion) a month to achieve 2 percent inflation in two years. The yen has slumped more than 15 percent against the dollar this year in anticipation of monetary expansion.

Bangko Sentral had a 95.4 billion-peso ($2.3 billion) loss in 2012 from 33.7 billion pesos a year earlier, according to data on its website. Almost half those losses were due to exchange-rate fluctuations, the BSP has said.

“It makes no sense to have exchange rates go up and down in response to short-term volatile capital flows,” Shanmugaratnam said. “You do need macro-prudential policies to avoid asset market bubbles from building up as you see significant capital inflow into your economies.”

Expanded Access

The Philippine monetary authority expanded access to SDAs in May 2007 after money-supply growth climbed to 28 percent the previous month. Monetary growth accelerated to 11.41 percent in March this year, a three-year high.

The SDAs held 1.93 trillion pesos as of April 26. Portfolio inflows climbed to $3.51 billion in April, about 137 percent higher than a year earlier, according to central bank data.

Bangko Sentral said April 18 it had broadened the range of approved outward investments to spur capital outflows and slow the peso’s gains. It held the rate it pays lenders for overnight deposits at a record low at its review April 25.

Today’s decision is part of BSP’s “efforts to fine-tune its monetary policy instruments and therefore gain greater flexibility in conducting monetary operations, while ensuring adequate liquidity for economic activity,” Governor Amando Tetangco said in an e-mailed statement.

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