MANILA - Sustained deceleration of the Philippines’ inflation rate is expected to help net foreign portfolio investments recover in the remaining months of 2019 even after posting net outflows in recent months.
Bangko Sentral ng Pilipinas data show that, as of the week ending August 9, foreign portfolio investments, or hot money due to the speed when it flows in and out of an economy, posted net outflows amounting to USD871.27 million.
On a monthly basis, net inflows were registered in January, February, and July; while net outflows were posted in March, April, May, and June.
Union Bank of the Philippines chief economist, Ruben Carlo Asuncion, said hot money inflows may get a lift from the lower inflation rate, which in turn, will boost domestic consumption.
In the first seven months this year, rate of price increases averaged at 3.3 percent, within the government’s two to four-percent target band.
In July alone, inflation eased further to 2.4 percent from 2.7 percent in the previous month.
Additional factor boosting hot money is the expected recovery of the domestic economy, which in the first half of the year, posted an average of 5.5 percent, lower than the government’s six to seven-percent target band due to the impact of the delay in the approval of this year’s national budget.
The delay in budget approval hampered the government to spend based on its program for the year and this affected domestic output.
However, economists forecast a recovery in the second half of the year, which Asuncion said “may buoy hot money towards the end of the year.”
“Although, it must be clear that inflows and outflows of “hot money” are largely dependent on external sentiment,” he added.
Relatively, Rizal Commercial Banking Corporation chief economist Michael Ricafort cited that the USD15-million net inflows in July was an improvement from the net outflows since March, but was lower than the USD53.29 million net inflows same period last year.
“The latest figure is, also better vs. the net foreign selling for the previous four months as local financial markets posted gains,” he said in a reply to an e-mail from PNA.
Ricafort said the Philippine Stock Exchange index posted a 16-month high of 8,419.55 points on July 16, the peso exchange rate improved against the greenback and closed at 50.89 on July 30, and local interest rate benchmarks mostly eased by about 0.30 percent in July, or price gains of about +3 percent.
With these, he forecasts hot money “to revert back to net foreign buying” and “could pick up towards the end of 2019 amid further easing of inflation to one percent levels (from 2.4 percent in July 2019) that could a source of excitement/optimism/positive lead in the local financial markets.”
“The S&P upgrade on the country's credit rating on April 30, by a notch to BBB+ (two notches above the minimum investment grade) could have helped in attracting more foreign portfolio/hot money investments into the Philippines,” he said.
On the external front, he said the continued drop of US and global bond yields “to new record lows near zero or deeper into negative interest rates for some developed countries could still support net foreign portfolio investment inflows/hot money into the country.”
These external factors are also seen to “support the gains in the local financial markets, as some global investor search for higher yields/returns in emerging markets with better economic and credit fundamentals such as the Philippines,” he added.*PNA
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