BSP: New gov't borrowing tack to help deal with capital flows

Posted at 03/22/13 5:18 PM

MANILA - The Philippine government's plan to source nearly all of its borrowing requirements this year from the local debt market will lessen the need for the central bank to take action to deal with strong capital inflows, a senior bank official said on Friday.

The government intends to forego much of its foreign funding plans and rely more on domestic sources to finance its the budgetary needs this year, in a move that may help contain the peso's strength. 

"This helps mitigate capital inflows and reduce the need for measures that will address the impact of these inflows," Deputy Governor Diwa Guinigundo told reporters.

Manila was previously looking to raise $750 million to $1 billion from overseas debt sales this year to finance its budget deficit, down from the $1.5 billion to $2 billion plan announced in November.

Finance Secretary Cesar Purisima has said the government's move to borrow more from the domestic market was in part meant to support the Bangko Sentral ng Pilipinas, which has cited capital inflows as one its major challenges this year.

The central bank spent billions of pesos over the past year to shield the Philippine currency and economy from the impact of large inflows of foreign money. 

At its March 14 policy meeting, the central bank cut the rate on its short-term special deposit account facility for second time in a row to discourage dollar flows that have pushed the peso to become Asia's second-best performing currency last year.

Upward pressure on the currency is expected to remain as foreign investors continue betting on the country's strong economic fundamentals and the prospect of a credit ratings upgrade to investment-grade status.

Governor Amando Tetangco said on Wednesday policymakers will continue to assess the need for further reductions in the SDA rate, which now stands at 2.5 percent for all SDA deposits.

Money parked with the central bank's special deposit account window totaled P1.88 trillion in the week ending March 1, close to a record P1.9 trillion in September.