BSP to offset surge in foreign capital inflows with 'creative' tools

The Bangko Sentral ng Pilipinas will use “creative” measures, besides the usual interest-rate cut, to curb the negative effects of a boost in foreign capital inflows as the economy continues to grow. One measure is a regulation, issued by the BSP in July, prohibiting banks from investing their foreign clients’ funds in special deposit accounts (SDAs) with the central bank. Another is the requirement that banks raise higher capital cover for investments in non-deliverable forwards (NDFs), which are believed to be used for speculative investments. “We can no longer rely just on adjustments of the policy rates to address the challenges brought about by surges in capital flows. We have to use other tools. We have to be creative to see what appropriate tools to use,” BSP Governor Amando Tetangco Jr. told reporters on Tuesday. Last week, the BSP cut its key policy rates by 25 basis points for the fourth time this year, bringing the rates to record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending. The cuts in the BSP’s key policy rates are expected to influence a reduction in interest rates on peso-denominated securities, and thus cause a decline in yields. — BM, GMA News