Manila (Philippine Daily Inquirer/ANN) - The banking sector is not keen on the idea of imposing controls on the entry of foreign ¿hot money,¿ saying such measures could scare off investors.
According to Bank of the Philippine Islands president Aurelio Montinola III, the banking sector supports the current policy stance of the Bangko Sentral ng Pilipinas (BSP or central bank) on foreign capital inflows.
That the BSP said it was not inclined to impose controls on entry of foreign capital was welcome news to industry players, he said.
¿People will be concerned if there would be talks of capital controls,¿ Montinola said on Wednesday.
Questions on whether the BSP will restrict entry of foreign portfolio investments arose amid projections by some economists that foreign ¿hot money¿ to the Philippines and other emerging Asian economies may suddenly surge within the short term.
This is because of the prolonged debt crisis in the eurozone that is seen prompting foreign portfolio investors to transfer funds to emerging economies in Asia, where yields are higher.
Data from the BSP showed that the net inflow of foreign portfolio investments reached US$963 million in July, more than triple the $302 million registered in the same month last year.
Last month, the BSP issued a regulation prohibiting foreign funds from being invested in the central bank¿s special deposit account (SDA).
Central bank officials, however, said the regulation was not meant to restrict entry of foreign portfolio investments.
The move was only meant to make the SDA facility perform its main function, which is to siphon excess liquidity in the domestic economy.
This means that only excess cash of Philippine residents should be accommodated by the SDA facility, a high-yield deposit account.
BPI¿s Montinola said the ruling on the SDA was acceptable, agreeing that the BSP was merely fine-tuning the rules governing SDA investments.
BSP officials said imposing controls on entry of foreign capital entails the risk of a significant drop in the short-term investments.
They said growth in foreign portfolio investments was essential as this helps develop the country¿s capital markets.
However, too much of it could destabilize the economy.
This is because a surge in foreign portfolio investments could cause the peso to suddenly and significantly appreciate.