BSP chief eyes net inflows to EMEs as a result of SNB decision

Bangko Sentral ng Pilipinas (Central Bank of the Philippines). Wikipedia photo

MANILA — Net inflows to emerging market economies (EMEs) are possible with this week’s decision by the Swiss National Bank (SNB) to remove the cap on the Swiss franc’s value against the euro.

”Going forward, these inflows could help soften the effect of an underlying strong US dollar,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said.

Aside from the removal of the minimum exchange rate of 1.20 francs to a euro, which was put in place in September 2011 to address the franc’s overvaluation, SNB also lowered key interest rates from -0.25 percent to -0.75 percent.

The Philippine central bank chief said the SNB move “effectively takes out one “fixed point” in the global market,” thus, it “increases financial market volatility.”

Tetangco cited that analysts now project a looming additional stimulus program from the European Central Bank (ECB) because of the unexpected SNB decision.

“Together, these could translate to an increase in volatility in our own domestic markets also,” he said.

Tetangco said currencies in EMEs “may initially weaken in sympathy with EUR, but with interest differentials still in favor of most EMEs (especially as SNB also lowered interest rates on sign deposits), it is possible that we could see net inflows into EMEs, including the Philippines.”

”We will consider these developments in our next policy meeting, and evaluate how these would affect the outlook for inflation and our own growth dynamics,” he added.

The first policy meeting of the BSP’s policy making-Monetary Board (MB) for 2015 is scheduled on Feb. 12.