Philippine Daily Inquirer
1:31 pm | Tuesday, October 30th, 2012
Bangko Sentral Governor Amando Tetangco Jr. FILE PHOTO
MANILA, Philippines—Bangko Sentral Governor Amando Tetangco Jr. said Tuesday they were prepared to use alternative means to address a potential surge in foreign portfolio investments, noting that adjustments in key policy rates alone may not be enough.
Agreeing that the recent credit rating upgrade for the Philippines may lead to a rise in capital flows, Tetangco said the BSP was inclined to counter a surge and its ill effects by using “other tools” besides adjustments in the policy rates.
“Capital flows are influenced by many factors, and one of the most important is economic growth. It may also be influenced by interest rate differential (the difference between interest rates in the Philippines and abroad). However, we can no longer rely on just policy rate adjustments to address challenges from surges in capital flows,” Tetangco said. “We have to use other tools. We have to be creative to determine specifically what tools to use.”
BSP officials said earlier that other tools available include “macroprudential tools,” which are bank regulations, such as regulations that limit exposure of banks to certain assets.
The BSP last Thursday cut its key policy rates, which influence commercial interest rates, by 25 basis points, bringing them to new record lows of 3.5 and 5.5 percent, respectively.
Although foreign portfolio investments are welcome, the BSP said too much of it could destabilize the economy. These could lead to excessive volatility of the exchange rate, for instance, thus disrupting the performance of businesses, especially those engaged in import and export.
Moody’s on Monday raised the Philippines’ credit rating from two notches to just one notch below investment grade. Government officials expect the Philippines to receive an investment grade rating by next year.
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