Philippine central bank to maintain market discipline amid huge fund inflow

21:20, October 28, 2009      

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The Philippine central bank assured Wednesday that market discipline will be maintained and regulatory safeguards will remain in place in the event the flow of foreign funds proves to be overwhelming over the near and medium term.

Central Bank Governor Amando M. Tetangco Jr. gave this assurance to analysts at Citigroup who asked him and colleagues in the region what they intend to do in case there is a "wall of money" swamping the region's currency market.

The "wall of money" scenario has attracted attention in recent weeks as foreign funds stream back to countries like the Philippines on expectations that the global recession is bottoming out. Previously risk-averse fund managers in the U.S. and Western Europe started investing again in emerging market economies.

A Citigroup report issued last week noted that the Philippine central bank was not likely to put up any form of capital controls like what Brazil did recently when it taxed portfolio inflows to stem the heavy flow of foreign funds. Citigroup based this conclusion from the previous policies implemented by the Philippine central bank.

Tetangco assumed his post in April 2005 and was in a position to shepherd the peso when the country's foreign exchange reserves, or the gross international reserves, expanded by 48 percent that year.

In 2007, the Gross International Reserves rose to an all-time high of 23 billion U.S. dollars. The foreign exchange reserves were so huge that the central bank encouraged the private and public sectors to pay down foreign debt. Tetangco also allowed the banks to retain a bigger amount of dollars in their vaults than allowed previously.

Source: Xinhua
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