ADB official: No asset price bubble in PHL, but there are risks

There is no evidence that asset price bubbles in the Philippines’ real estate sector and financial markets are forming, but the government needs to address lack of investment opportunities to stem excessive foreign fund inflows, an Asian Development Bank (ADB) economist said Tuesday. At a forum sponsored by the Center for Philippine Futuristics Studies and Management Inc., ADB senior country economist for the Philippines Norio Usui said, “There are no clear sign of asset price bubbles, but the government must be keen on developments.” “There is no bubble now, but there are risks,” he added. Usui said portfolio inflows have been increasing since 2009 as foreign fund managers pour in money into the Philippines as it economy continues to hurtle forward amid a bleak global economic backdrop. Based on latest Bangko Sentral ng Pilipinas data, foreign portfolio investments – also known as hot money given the ease with which they can be put in and out of an economy – in the first quarter was recorded at $1.086 billion, way above the $464.45 million in the same period last year. Hot money inflows, unlike foreign direct investments, are speculative in nature and do not directly strengthen industries and create jobs. These, instead, cause foreign exchange volatility and fuel asset prices up. What the government can do to cushion effects of increased speculative inflows on foreign exchange and asset prices is to increase investment opportunities here, Usui said. “Once money goes here, there should be a place where they can be parked,” he added. Usui noted, “If there [are] enough investment opportunities present here, then it is good. But if there are no places to go to, money will be funneled into financial markets and assets like real property.” While the Bangko Sentral has said that it sees no asset price bubbles, monetary officials repeatedly said they remain watchful of the rise in asset prices and its effect on bank's loan portfolio as a precautionary stance. Monetary officials will meet on April 25 to discuss policy. Last March 14, they cut rates of special deposit accounts (SDA) – a tool used to mop-out excess liquidity that can stoke inflation — by 50 basis points to 2.5 percent to funnel more funds for productive uses. It rationalized SDA rates to 3 percent in January.   Usui said, “Reduced rates of the SDA, will cause banks and financial institutions to just lend out more money to the private sector,” noting that the SDA window is a favorite of such firms to park unused funds. Policy rates have remained untouched at 3.5 percent for overnight borrowing and 5.5 percent for overnight lending since October last year. — KBK, GMA News