BSP to use prudential tools against foreign capital surges — UBS

Zurich-based Union Bank of Switzerland (UBS) said the Bangko Sentral ng Pilipinas (BSP) and other monetary regulators in Southeast Asia will remain broadminded about rising liquidity and credit expansion, preferring to use “macro-prudential tools" like reserve requirements and capital controls. "These measures, we think, will allow Malaysian, Thai, Philippine and Indonesian central banks to continue resisting currency appreciation when exports prospects are relatively dim — as they seem now," UBS economist Edward Teather said. Teather also observed that these central banks have opted to use currency appreciation as way to contain the surges of foreign capital from the United States and other advanced economies. High foreign capital inflows have raised domestic liquidity in recent months, prompting the BSP to first raise its policy rates and then gradually increase its reserve requirement just so it could keep 2011 inflation under 5 percent. “Given strong credit and money growth is inflationary in the long run, it remains to be seen how robust inflation goals prove to be in coming years. Teather said the UBS projects Philippine inflation for the whole year settling at 5.2 percent. — ELR/VS, GMA News