BSP won’t stem continued capital inflows, no cause for inflation worries

Short-term capital flows were seen at elevated levels in emerging markets like the Philippines over the next few months, the Bangko Sentral ng Pilipinas said on Friday. As a result, the BSP was not likely to recalibrate its monetary policy settings for its last scheduled review for the year on Dec. 29. “The challenge remains to be the capital flows. We will have to continue to watch that and see what measures will have to be recalibrated," BSP Governor Amando M. Tetangco Jr. said. Continued inflows have allowed the BSP to accumulate more than US$61 billion in foreign exchange reserves and to have the local currency (the peso) appreciate by some five percent against the US dollar to date. But at the same time, the continued foreign inflow triggered a run-up in asset prices in recent months, raising concerns over inflation and inflation pressures down the line. Tetangco said while foreign inflows remain strong, these do not appear to pose an immediate threat to financial stability. “At this point the assessment is that inflation will continue to be manageable. There is no urgency in recalibrating monetary policy settings," he said. Benefits and burdens of foreign capital Three weeks earlier, Tetangco met with counterparts in the region to try to learn from each other about the benefits and burdens presented by the flow of foreign capital from weakened economies of the West to emerging markets like the Philippines. Tetangco said while some colleagues have adopted measures meant to slow the inflow of foreign capital into their economies, such cannot be said to apply to the local economy. “At this point, we (in the BSP Monetary Board) do not see a need to impose capital controls. The monetary policy toolkit we have been using has proven to be efficient," he reiterated. Four weeks earlier, the Monetary Board said the run-up in asset prices, while mainly driven by strong foreign capital inflows, “does not appear to pose an immediate threat to financial stability as there is limited evidence of stretched market valuations compared to long-run averages while growth in credit and liquidity is broadly at pace with the expansion in economic activity. “Nevertheless, asset price movements continue to warrant careful attention," said the seven-man policy-setting Monetary Board headed by Tetangco. – MRT/KBK GMANews.TV