Post on 19-Oct-2014
description
Policy Challenges for Asian Economies
amid Global Liquidity Infusion:
Some Philippine perspectives*
ZENO RONALD R. ABENOJA
Director, Department of Economic Research
Bangko Sentral ng Pilipinas
2nd OECD-AMRO Joint Asian Regional Roundtable
Singapore
19 July 2013
*The views expressed in this presentation are solely the responsibility of the presentor and should not be interpreted as reflecting the views of the Bangko Sentral ng Pilipinas (BSP).
2
I. Magnitude and impact of capital flows
II. BSP policy responses to capital flows
III. Early unwinding of QE in advanced economies
IV. Key take-aways
Outline
I. Magnitude and impact of capital flows
What drives capital flows?
• Push factors in advanced economies
� Quantitative easing and
low interest rates
� Fiscal concerns
• Pull factors of emerging
market economies
� Favorable growth prospects
� Higher returns
3
Official interest rates
%, GDP-weighted average
Source: IIF, January 2013
Capital inflows for EMEs expected to remain strong
4
Source: Institute of International Finance, June 2013
in million US$
-4500
-2500
-500
1500
3500
5500
7500
2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2012 Q1 2013
Direct Investment Portfolio Investments
Other Investments
Foreign Portfolio, Direct and Other Investments(in US$ million)
Q1 2013FDI: US$1,303 MFPI: US$2,352 MOther Inv:-US$1,347 M
Foreign capital inflows to PH remain strong amid credit
rating upgrades
in million US$
-4500
-2500
-500
1500
3500
5500
7500
2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2012 Q1 2013
Direct Investment Portfolio Investments
Other Investments
Foreign Portfolio, Direct and Other Investments(in US$ million)
5
Q1 2013FDI: US$1,303 MFPI: US$2,352 MOther Inv:-US$1,347 M
6
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Sep
-08
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
Sep
-09
No
v-0
9
Jan
-10
Ma
r-1
0
Ma
y-1
0
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Ma
r-1
1
Ma
y-1
1
Jul-
11
Sep
-11
No
v-1
1
Jan
-12
Ma
r-1
2
Ma
y-1
2
Jul-
12
Sep
-12
No
v-1
2
Jan
-13
Ma
r-1
3
Gross Foreign Portfolio Investments
(In US$ million)
QE1 announcement, Nov 2008 QE2 announcement, Nov 2010
Op. Twist, Sep 2011 QE3
announcement,
Sep 2012
QE4
announcement,
Dec 2012
Successive QE rounds have been accompanied by a broad
increase in gross portfolio inflows
What has been the impact on the economy of strong
capital inflows?
• Liquidity
– M3-to-GDP ratio has trended upwards
– M3 level is 35% higher as of end-May 2013 vs. end-2009
• Credit/loans
– KB loans up by more than 50% relative to end-2009
– Indebtedness is relatively low: 52% credit-to-GDP ratio
7
Equity price indicators have trended upward
8
May :21.80
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
26.0
28.0
30.0
19
97
M0
1
19
97
M0
7
19
98
M0
1
19
98
M0
7
19
99
M0
1
19
99
M0
7
20
00
M0
1
20
00
M0
7
20
01
M0
1
20
01
M0
7
20
02
M0
1
20
02
M0
7
20
03
M0
1
20
03
M0
7
20
04
M0
1
20
04
M0
7
20
05
M0
1
20
05
M0
7
20
06
M0
1
20
06
M0
7
20
07
M0
1
20
07
M0
7
20
08
M0
1
20
08
M0
7
20
09
M0
1
20
09
M0
7
20
10
M0
1
20
10
M0
7
20
11
M0
1
20
11
M0
7
20
12
M0
1
20
12
M0
7
20
13
M0
1
Price-to-Earnings (P/E) Ratio
January 1997 - May 2013
P/E Ratio
Trend
• But have corrected lately following signals of scaling down of QE measures
from advanced economies
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
19
97
M0
1
19
98
M0
1
19
99
M0
1
20
00
M0
1
20
01
M0
1
20
02
M0
1
20
03
M0
1
20
04
M0
1
20
05
M0
1
20
06
M0
1
20
07
M0
1
20
08
M0
1
20
09
M0
1
20
10
M0
1
20
11
M0
1
20
12
M0
1
20
13
M0
1
Philippine Stock Exchange Index
January 1997 - June 2013
Philippine Stock Exchange Index
Trend
II. BSP policy responses to capital flows
9
Enhanced policy toolkit that includes macroeconomic policies,
reform measures, …
• Understanding the nature of FX flows
• Greater exchange rate flexibility
• Accumulation of reserves and sterilization operations
• Liberalization of foreign exchange regulations
• Financial sector reforms
• Intensified macroeconomic surveillance and monitoring
• Further strengthening of capitalization of banking system
�Implementation of Basel III capital requirements in 2014
10
…as well as macroprudential measures
Caveats on macroprudential policies
• Not a substitute for sound macroeconomic policies
• Activities could be driven outside the regulatory envelope
• Unintended effects on growth or financial sector development
11
• Imposed higher capital charge on NDFs
• Set a cap on NDF transactions
• Disallowed placements of foreign funds in SDA facility
• Intensified monitoring of banks’ real estate exposures
• Approved reference standards for real estate activities
Results of BSP measures
12
0
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013
YTD 2013 Actual Inflation: 2.9 percent
Steady inflation
18.5 23.033.8 37.6
44.2
62.4
75.383.8
76.181.6
3.84.2
5.86.0
8.7
9.5
12.1
11.9
0
2
4
6
8
10
12
14
0
10
20
30
40
50
60
70
80
90
2005 2006 2007 2008 2009 2010 2011 2012 Jun '12 Jun '13
FX Reserves
(LHS)Import Cover
(RHS)
in billion USD no. of months
More than adequate GIR
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2008 2009 2010 2011 2012 2013
May 2013
13.1 pct
Continued provision of credit
Growth of KB loans
Strong external payments position
III. Early unwinding of QE in advanced economies
13
Possible adverse effects
• Higher debt servicing costs
• Correction in asset valuation
• Credit crunch
• Risk aversion and financial market volatility
Recent volatility suggests that QE exit and higher US
interest rates could have significant ripple effects
14
586.0
-305.3
183.7
333.4
106.3
-7.7
962.8
387.4 402.4
40.2
1,008.8
213.3
1,270.3
211.7
-395.1
1,131.1
-640.8
-23.0
-1000
-500
0
500
1000
1500
BSP-Registered Net Foreign Portfolio Investments
in million US dollars
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
Jan
-11
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Jun
-11
Jul-
11
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Jan
-12
Fe
b-1
2
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Jun
-12
Jul-
12
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Jan
-13
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Ma
y-1
3
Jun
-13
Jul-
13
Net Foreign Transactions
Net Foreign Transactions in the PSE
(in P million)
Peso weakened amid heightened risk aversion
On a year-to-date basis, the peso weakened
against the USD by 5.5 percent to close at
P43.34/US$1 on 15 July 2013
15
Peso per US dollar Exchange Rate
(As of 15 July)
Year-to-date Changes in Asian Currencies against US$
(In percent, as of 15 July)
PHL equity price indicators corrected while spreads
widened following Bernanke QE statement
16
Philippine Stock Exchange Index (PSEi)(In index points, as of 16 July 2013)
Bernanke’s Congressional Testimony (22 May) ->
FOMC meeting (19 June) ->
Price Earnings Ratio of ASEAN Countries(As of 16 July 2013)
EMBIG Spreads of ASEAN Countries(In bps, as of 16 July 2013)
5-Year CDS Spreads of ASEAN Countries(In bps, as of 16 July)
Riding out the turbulence:
Sources of strength of the Philippine economy
• Policy space
• Buffers �Strong domestic growth
� Benign inflation environment
� Robust liquidity and credit growth
� Sound banking system
� Strong external payments position
� Ample FX reserves
� Strong external debt dynamics
• Communication will be key
17
• Liquidity provision measures
� Raise rediscounting budget;
� Reduce BSP’s reserve requirement, if inflation outlook allows;
� Lengthen the maturity of BSP lending instruments; and
� Enhance existing peso and US dollar repo facility.
• Communication and coordination measures
� Engage in timely communication with financial institutions and market
participants;
� Encourage firms with FX exposure to avail of hedging facilities; and
� Continue cooperation with other central banks for information sharing.
Possible contingency measures against outflows
18
IV. Key take-aways
� Philippine economy stirred but not shaken by the
impact of capital flows
• Global spillovers manageable given homegrown
sources of resilience
19
� There is policy space/flexibility to ride out headwinds
• Macro stabilization through timely and calibrated monetary policy
responses
• Prudential measures in place to prevent financial imbalances
• Recent corrections have adjusted risk premia
• Contingency measures in place against possible outflows, tightness in
financial markets
Policy Challenges for Asian Economies
amid Global Liquidity Infusion:
Some Philippine perspectives*
ZENO RONALD R. ABENOJA
Director, Department of Economic Research
Bangko Sentral ng Pilipinas
2nd OECD-AMRO Joint Asian Regional Roundtable
Singapore
19 July 2013
*The views expressed in this presentation are solely the responsibility of the presentor and should not be interpreted as reflecting the views of the Bangko Sentral ng Pilipinas (BSP).