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Philippines is a big candidate as an investment destination
« on: August 22, 2009, 04:19:17 PM »
Philippines is a big candidate as an investment destination now that risk aversion has declined and investors start pouring their money again in emerging markets.

However, this will complicate monetary policy decision in the case of the Bangko Sentral ng Pilipinas (BSP).

BSP Deputy Governor Diwa Guinigundo told reporters that surge of capital inflows will be a challenge for them since this will affect the inflation outlook.

He explained that growth of domestic liquidity (M3) will be higher as the economy becomes more attractive to foreign investors.

Also, the exchange rate will also be affected since this will make the peso stronger against the US dollar, he said.

Improvement in the exchange rate will not only be a problem of the central bank but also the exporters and the beneficiaries of Overseas Filipino Workers (OFWs).

Guinigundo said reports about the coming out of signs of global economic recovery has lessened risk aversion and have stabilized financial markets.

He explained that although “risks are still elevated, (the) Philippines - given the generally sound macroeconomic fundamentals – will naturally attract capital flows.”

“With lower risk aversion, risk appetite has somewhat increased (and) therefore they're willing to go into emerging markets so they will begin to invest and Philippines will be a good candidate for investment destination,” he said.

Guinigundo said they have noted higher investments since late July and these were placed in the equities and money markets as well as bank deposits.

With the rise in investments and its impact on among other the inflation, exchange rate and economic activities inflation outlook will also be affected and a major concern for the BSP, which is an inflation targeting central bank.

Guinigundo said that in the past they address this situation through encouraging both the public and the private sector to prepay their foreign obligations “so that demand for dollars will also increase if only to match increased supply of dollars on acct of capital flows.”

He said that “(increased inflows) complicates conduct of monetary policy so we adopt to new situation.”

“If inflows are high we buy dollar to make sure volatilities, sharp and prolonged, are avoided,” he said.

Guinigundo said that the almost 19 percent rise of the peso against the dollar in 2007 cost the central bank big since they have to address the fast rise of the local currency.

“That's the cost of stabilization. Everybody lost in 2007,” he added.

BSP said the current inflation outlook remain favorable and the present policy stance is supportive of growth as inflation remains low and is eyed to be within the government’s 2.5-4.5 percent target for this year and 3.5-5.5 percent target for 2010.

Monetary officials again revised downward their inflation forecast for this year to three percent for this year from 3.3 percent previously while 3.3 percent for next year from the previous 3.5 percent forecast.

Relatively, BSP Governor Amando Tetangco, Jr., said Thursday said the expected recovery of the global economy “may cause upward pressure on oil and other commodity prices,” thus, monetary officials will pay “close attention to the emerging risks to the inflation outlook as well as to indications of the strength of economic activity.”(PNA)

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