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NEWS UPDATES Asean Affairs  18 October 2010

Philippines moves on foreign exchange

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THE Philippine central bank is set to amen foreign exchange guidelines before the end of the year in a bid to facilitate outflows amid the surge in hot money inflows that have caused the peso to appreciate too fast.

"This is urgent, high priority. For sure it will be by the end of the year or much earlier. Right now money is flooding into the country, our reserves are growing," Espenilla told reporters.

Preliminary data from the BSP showed that the country's gross international reserves (GIR) in the first nine months rose to $53.54 billion, breaching the full-year forecast of $50 billion set by the central bank for the year.

Espenilla said monetary officials are also looking at relaxing the registration requirements for outward investments.

The central bank is trying to avoid a possible asset bubble amid abundant liquidity, which may lead to a buildup in inflation pressures.

Hot money flows into the Philippines surged ten-fold last month to $494 million from $47 million in the same month last year, coinciding with the start of a bull run in local stocks that allowed the market to set fresh record highs.

Domestic liquidity or M3 grew 8.6 percent year-on-year to P3.9 trillion in August, or slower than the 10.2 percent expansion in July owing to a deceleration in the growth of net foreign assets.

Consumer price increases however eased to a 10-month low last month because of a drop in the inflation rate of all commodity groups. Inflation averaged 4.1 percent in the first nine months, or within the full-year BSP target range of 3.5 percent to 5.5 percent.

Early this month, monetary authorities decided to keep policy rates at record lows given the favorable inflation outlook.

Traders last Friday said the peso would continue to give way to a correction today after rallying against the dollar last week.

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