Hot money outflow to slow down – BSP

MANILA, Philippines - The rapid outflow of foreign portfolio investments or hot money in the first three weeks of January may slow down soon as investors start looking again into the country’s strong macroeconomic fundamentals, the Bangko Sentral ng Pilipinas said yesterday.

“The outflows we’ve seen so far are possibly part of the global portfolio rebalancing,” BSP Governor Amando M. Tetangco Jr. told reporters.

“At points of inflection in market sentiment, there is often an exaggeration in market reaction,” he continued.

The country has seen three consecutive weeks in January of net foreign portfolio outflows due largely to the US Federal Reserve’s reduction in its monthly asset purchases.

A net hot money outflow of $813.50 million was recorded as of Jan. 17 a reversal of the net inflow of $976.38 million seen in the same period last year.

“In the case of the Philippines, we believe any such overshooting would soon be tempered as market participants revert to considering the country’s sound macrofundamentals that continue to be solidly in place,” Tetangco said.

The country continued to enjoy a robust economic growth that exceeded expectations at 7.2 percent last year and a manageable inflation rate that averaged three percent in 2013.

The Philippines also boasts of a current account surplus and a healthy gross international reserves that both serve as buffers against any systemic risks.

Last year, net hot money inflow climbed eight percent to $4.2 billion from $3.9 billion in 2012.

The BSP expects the net hot money inflow to reach $2.1 billion this year, lower than year-ago level due to the Fed’s decision to scale back its stimulus.

“We are keeping the BOP (balance of payments) projections for now, but we continuously perform internal updates. We will announce any changes at the appropriate time,” Tetangco said.

Hot money, along with foreign direct investments, remittances from Filipinos abroad, and trade activities, form part of the balance of payments, which is a summary of the country’s transactions with the rest of the world.