The expected strong inflow of foreign direct investments this year is likely to drive the value of the Philippine peso upward, according to Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco in a recent interview.
As higher investments inflows will impact positively on job creation and economic growth in general, BSP finds it prudent to accommodate the effects of the increased FDI on the exchange rate.
Tetangco explained it would not be wise to go against the fundamental trend. “So, we would, as before accommodate some peso appreciation.”
At the same time, pressures on the peso resulting from short-term foreign portfolio investments or those of a speculative nature (sometimes called hot money) would not be tolerated, Tetangco added.
The Bangko Sentral will also be watchful of the behaviour of the currency in the market to keep excessive price volatility in check.
As of November 2012, gross FDIs to the Philippines amounted to $1.34 billion, 6.8 per cent higher than the $1.26 billion net inflow recorded the year before.
Stronger inflows are attributed to the country’s improving economic fundamentals, including faster economic growth, declining debt burden, and rising foreign-exchange reserves.
However, foreign investments flowing to the country still pale in comparison with those going to neighboring countries.
This is likely to change when the Philippines finally attains the much-awaited investment-grade rating from credit risk rating agencies, a change which is expected to happen this year. At present, the country is rated a notch below the investment grade.