Rate hike – no effect to PH capital flow

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MANILA — The Bangko Sentral ng Pilipinas (BSP) recently announced that the implementation of rate hike failed to boost the capital entering the country.

In an email, BSP Deputy Governor Diwa Guinigundo said that they “have not seen any incremental wave of capital flows following the BSP’s policy rate hike.”

It can be recalled that on July 31, the Monetary Board increased the rates of overnight borrowing and overnight lending by 25 basis points each, the first adjustment since October 2012. The new policy aims to make sure that the inflation target will remain within three to five percent range this year, and two to four percent in 2015.

“The recovery in capital flows started as early as the second quarter through August 2014,” Guinigundo said. “Cumulative net outflows are now down to less than a billion dollars compared to more than $2 billion in the first quarter,” he added.

Last July 25, net portfolio investment recorded outflows of $938.6 million, a reversal of the $2.39 billion net inflows recorded during the same period in 2013.

This was due to a $1.84 billion net outflow in January as investors pulled out their capital from emerging markets which include the Philippines.

“While interest rate differential is an important element in portfolio decision of foreign investors, the overall macroeconomic picture is more important,” Guinigundo said. “After their knee jerk reaction to the Fed (US Federal Reserve) taper tantrum, investors have realized that the Philippines is indeed an investment grade destination,” he added.