Bangko Sentral biggest Challenge: So much money coming in to the Country

Amando Tetangco, governor of Bangko Sentral ng Pilipinas, seen in this Oct. 8, 2012 photo, said interest rates will remain low this year even as growth will probably meet the government's 6 percent-to-7 percent target. Amando Tetangco, governor of Bangko Sentral ng Pilipinas, seen in this Oct. 8, 2012 photo, said interest rates will remain low this year even as growth will probably meet the government's 6 percent-to-7 percent target. Photographer: Julian Abram Wainwright/Bloomberg

Bloomberg published "Philippines Joins Korea in Weighing Steps to Curb Inflows" also explained how would it affects the country's economy if left uncontrolled.  

Philippine central bank Governor Amando Tetangco said he's studying more measures to counter excessive capital inflows lured by growth, joining South Korea and Singapore in warning that policy makers need to consider more steps to reduce the impact of such funds.

"Capital flows and the impact of these on the local economy and local financial markets" would be among the biggest challenges this year, Tetangco said in an interview in his office yesterday. "We continue to study what other measures can be implemented just in case there's a need to adopt more measures in the future."

Monetary easing in developed nations from Japan to the U.S. and Europe has spurred flows to faster growing emerging markets as investors seek higher returns, boosting Asian stocks to the highest in 17 months this week. Bangko Sentral ng Pilipinas can't rule out further reductions on the rate it pays on funds placed in its special deposit accounts after a cut last week, Tetangco said.

"It's becoming challenging to manage inflows with so much of it coming in and increasing liquidity in the system," said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. "What the central bank doesn't want is for these funds to go into speculative activities, like to the property sector."

The Philippine economy grew 6.8 percent last quarter from a year earlier, the government said today, beating the median estimate of 6.3 percent in a Bloomberg News survey. Gross domestic product increased 6.6 percent in 2012, it said.

Gradual Appreciation

Singapore central bank Managing Director Ravi Menon said yesterday Asian policy makers should allow a gradual appreciation of their currencies along with other measures to keep inflationary pressures contained as the region faces a "wall of money." South Korea should consider taxes on currency trading and bonds to help limit "speculative" inflows of capital, Deputy Finance Minister Choi Jong Ku said yesterday.

Thailand will set up a team of economists, including central bank Governor Prasarn Trairatvorakul, to study how to respond to short-term capital inflows, Finance Minister Kittiratt Na-Ranong said yesterday. The country won't impose capital controls or tax measures to curb fund flows, he said.

Interest rates will remain low this year even as growth will probably meet the government's 6 percent-to-7 percent target, Tetangco said.

"From our point of view, we do not see signs of overheating in the Philippine economy," the governor said.

New Limits

Bangko Sentral in 2012 announced limits on banks' currency forward positions and banned overseas funds from special deposit accounts. Last week it cut the rate it pays on 1.72 trillion pesos ($42 billion) in its so-called SDAs to 3 percent from more than 3.5 percent. It kept the benchmark overnight borrowing rate unchanged at a record-low 3.5 percent.

"By introducing more macro-prudential measures, they're able to target specific concerns unlike using the main interest rate, which is a blunt tool," Santitarn said.

Philippine outsourcing companies have called on policy makers to curb the peso's gains to sustain competitiveness. Inflows must be managed as currency gains may hurt exporters and low rates may spur asset bubbles, New York University Professor Nouriel Roubini said in a speech in Manila yesterday.

"We don't see evidence of stretched market conditions at this point in time but we continue to monitor," Tetangco said. "We don't target a particular exchange rate. Our policy is the same; we won't go against the fundamental trend but reserve the right to step in the market to smoothen excessive volatilities as may be necessary."

Top Performer

Capital inflows have boosted Philippine stocks and helped make the peso Asia's best-performing currency in the past 12 months.

The peso climbed to 40.55 per dollar on Jan. 14, the strongest level since March 2008. It was little changed at 40.66 as of 10:15 a.m. in Manila, according to Tullett Prebon Plc. The yield on the three-year peso bonds fell to 3.29 percent this week, the lowest since September 2011. The main stock index climbed 0.6 percent today, extending a record high.

The $225 billion economy is on the cusp of an investment- grade rating, President Benigno Aquino said this month. That would attract inflows, Tetangco said yesterday.

The Philippines has the highest junk rating at Moody's Investors Service, Fitch Ratings and Standard & Poor's. S&P raised the outlook to positive last month and said an upgrade is possible in 2013 on improved governance and public finances.

Encourage Outflows

The Philippines may consider further loosening foreign- exchange rules to encourage outflows, Felipe Medalla, a member of the central bank's Monetary Board, told reporters yesterday.

"We're not thinking of imposing holding period for investments in stocks," Medalla said. "If at all, maybe on fixed income, because people who go to fixed income do carry trade. We're studying everything."

South Korea's finance official Choi said yesterday his government may further tighten restrictions on banks' currency forward positions. South Korea on Nov. 27 capped currency forward positions at 150 percent of equity for branches of foreign banks. The limit is 30 percent of equity for domestic banks.

Tools other than interest rates have to be used as emerging-market economies such as the Philippines try to curb volatility, sustain growth and keep prices stable, Tetangco said.

"The policy rate remains the main instrument of monetary policy," he said. "Over the long run, we may develop an interest-rate corridor. What we did last week was an intermediate step towards that. It's a medium-term objective."

Bloomberg 

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Philippines is poised to join the world’s 10 fastest-growing economies

Consumer Boom Fuels Philippines as Neighbors Hit by Export Pain

The Philippines is poised to join the world's 10 fastest-growing economies this year and next as Filipinos buying goods from dresses to condominiums cushion a faltering in exports that's hurt the rest of the region.

The economy extended a fourth quarter of expansion of at least 6 percent, boosting full-year growth to 6.6 percent, faster than economists had forecast. Consumer spending has risen to about three-quarters of gross domestic product from 63 percent a decade ago, World Bank data showed. The Philippines will expand 5.5 percent this year, and 5.4 percent in 2014, putting it among the fastest-expanding economies, according to Bloomberg surveys.

"We have a generation that has a better lifestyle now," said Frances de la Cruz as she waited in line to pay $100 for a black dress and a belt at a Zara store in a packed mall in Manila on a recent Saturday. De la Cruz, a 31-year old call center director, is part of an industry that has helped spur 10 percent income growth in the nation from 2009 to end-2011, along with remittances and a burst of manufacturing from Japanese investment.

The consumer spending strength means the nation may be more resilient to global shocks compared with other Asian export- dependent economies from Singapore to Taiwan, where growth slumped in 2012 as demand for goods eased.

Since he took office in 2010, President Benigno Aquino has sought to transform the Philippines from a laggard to one of the fastest-growing economies in the region by increasing government spending, curbing the budget deficit and reducing corruption, taking the country closer to an investment-grade rating.

Tommy Hilfiger

Consumer spending in the nation, among the most consumption-driven in Asia, rose 6.9 percent last quarter, holding above 5 percent for an eighth quarter. That's spurred sales of brands from Tommy Hilfiger to home-grown Suyen Corp.'s Bench.

"The Philippines has proven it's got particular strength in mitigating external headwinds because its domestic demand has kept the economy running even as other nations suffered," said Vishnu Varathan, a Singapore-based senior economist at Mizuho Corporate Bank Ltd. "Now with Aquino boosting infrastructure, capacity building, the growth potential over the longer term is rapidly increasing. The Philippines is on a very good footing to remain the blue-eyed boy in the region."

The Philippine peso has risen about 5 percent in the past 12 months, the best performer among 25 emerging-market currencies tracked by Bloomberg. The benchmark Philippine Stock Exchange Index climbed to a record in January.

Demographic Dividend

Southeast Asia's second-most populous nation already enjoys a demographic dividend compared to many of its neighbors, with most of its population in the 15-to-64 working-age range. Its labor force will expand by almost 18 million, or 31 percent, to 75 million by 2020 compared with 2010, with a median age of 23.9, Merrill Lynch has predicted. That compares with 37.8 in China and 43.4 in South Korea.

"It's a young, booming population," said Trinh Nguyen, a Hong Kong-based economist at HSBC Holdings Plc. "There's an energy, a euphoria you can sense in the Philippines. The domestic market is burgeoning, thanks to strong population and income growth. This has attracted flows from foreign investors looking to capitalize on the consumption-driven economy."

Japanese investment into the Philippines grew about 30 percent in 2011, while global retailers including Harry Winston Diamond Corp., Uniqlo Co. and Forever 21 Inc. have opened shop or expanded operations recently. Auto sales rose 11 percent in 2012, according to the Chamber of Automotive Manufacturers of the Philippines.

Rating Outlook

Aquino, the son of former President Corazon Aquino, is increasing spending to a record this year while seeking more than $17 billion of investments in roads and airports to spur growth to as much as 7 percent in 2013. Standard & Poor's in December raised the country's sovereign rating outlook to positive, citing improved governance and public finances.

A peace agreement with Muslim guerrillas in the mineral- rich Mindanao island in October is forecast to bring about $1 billion in investment commitments. Aquino has also shown progress in the fight against graft, with Transparency International raising the country's ranking on its annual corruption index to 105 last year, higher than Indonesia at 118.

Exports, which made up about 30 percent of GDP in 2012, slowed in November from the previous month. The nation also remains reliant on remittances, which account for about 10 percent of GDP. The unemployment rate is 6.8 percent.

"Growth is uneven," Nguyen said. "The government needs to raise investment to create jobs and cut poverty to make growth more inclusive."

That hasn't deterred consumers like Charlotte Co, a 26-year old accounting analyst who bought a one-bedroom condominium for 3.2 million pesos ($79,000) in 2011 and purchased a bright yellow Céline Trio bag for $1,000 in December with her savings.

"I would be brave to invest if I don't believe things are really changing," Co said. (http://bloom.bg/XVmWwg)

Bloomberg 

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Philippine economy beats market expectations, expands 6.6% in 2012

The Philippine economy grew 6.6 percent last year — beating the expectations of the market, lending institutions and even the government itself — driven by the services, trade, real estate and construction sectors.

In a briefing on Thursday, NSCB chief Jose Ramon Albert announced that output for the fourth quarter hit 6.8 percent, pushing the full-year gross domestic product (GDP) beyond the government's 5 to 6 percent growth expectations for 2012.

The full-year 2012 figure was significantly higher than 2011's 3.7 percent and was slightly higher than the National Economic and Development Authority's (NEDA) 6.5 percent GDP growth expectation.

It was also higher than the market's media forecast of 6.2 percent as shown in a GMA News Online poll.

"The increase was fueled by the robust performance of the services sector led by trade and real estate, renting and business activities as well as the substantial improvements of manufacturing and construction," the National Statistical Coordination Board (NSCB) noted in a separate statement.

"On the demand side, household final consumption expenditure together with government spending, the recovery of capital formation and the remarkable performance of the external trade contributed to the healthy growth of the economy in the fourth quarter and the whole year of 2012," it added.

GMA News

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