Philippines tightens regulations to stem speculative inflows

The Philippines has tightened rules on capital inflows by prohibiting foreign funds from investing in the central bank’s special deposit accounts, governor Amando Tetangco said yesterday, after the peso surged to a four-year high. Bangko Sentral ng Pilipinas will require banks to certify that investments in the special deposit accounts, or SDAs, are not sourced directly or indirectly from non-residents, Tetangco told reporters at a conference in Subic, north of Manila. He didn’t say when the rule will be implemented. “While SDA is principally a tool for managing liquidity, it has also become an entry point for foreign monies to participate in price actions in the peso-dollar market,” Tetangco said. “Existing regulations don’t provide restrictions on non-resident investors. It has, therefore, attracted carry trade.” The peso has risen almost 5% this year, the best performer among Asia’s 11-most traded currencies tracked by Bloomberg. It climbed to 41.6 per dollar on July 4, the highest level since April 2008. The peso fell on Friday after the central bank pledged to curb excessive volatility in the currency and said it was considering measures to discourage speculative capital from overseas. The Philippines’ $200bn economy grew 6.4% in the first quarter compared with a year earlier, the fastest pace since 2010 and the highest in Southeast Asia. Standard & Poor’s raised the nation’s debt rating to the highest level since 2003 on July 5, citing the country’s easing fiscal vulnerability and strengthening external position. In April, Tetangco said the central bank was monitoring inflows into the special accounts to prevent speculation, including carry trades. In a carry trade, an investor makes money by borrowing in a country with low interest rates, converting the money to a currency where borrowing costs are higher and lending the amount at that higher rate. The central bank’s two-week and one-month special accounts, which held 1.66tn pesos ($39.8bn) as of June 15, pay more than the nation’s 91-day Treasury bills. The one-month SDA yields 4.1875% while the three- month Treasury bill yield averaged 2.174% at the last sale in April. from gulf times.