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BSP to markets: Calm down

AFTER bouts of volatility in the local financial market this week, the Bangko Sentral ng Pilipinas (BSP) said that it would be best to wait and watch for further data from major markets around the world before making any move to shield the country from greater losses brought about by the global wave of volatility.

In a statement sent to reporters on Wednesday, Governor Amando M. Tetangco Jr. said the BSP may not need to adjust settings yet, if only in reaction to the recent market rumbles brought about by the moves of major central banks—particularly that of China’s.

“On the part of the BSP, we are watchful [that] the moves in the peso are not excessive, checking to see there is real demand behind the moves,” Tetangco said.

“For our next policy moves, we will need more data to see if there is need to support demand or manage inflation expectations. Given the lag of monetary policy, we may not need to adjust settings just  yet, unless, among others, El Niño intensifies or global growth slows significantly,” he added. “It is important not to be distracted from the medium-term reform agenda,” the governor added.

Tetangco also admitted that the volatilities in the local markets are engendered from the moves made by major central banks. However, he said the degree of volatility seen in the country, particularly in the foreign exchange and stock markets, are in line with the movements in the region.

On Monday the local currency suffered a major blow after market reaction took over trading largely from the developments seen from China’s economy, as well as the assumptions on the pending moves on the US’s interest rates. The peso then neared the 47 territory to end the day at 46.815 against the dollar. This is 31.5 centavos lower than the previous day’s trade.  While local market tensions subsided on Tuesday, near-term volatility is still expected especially as markets weigh in China’s most recent move of cutting its own interest rates on Wednesday, as well as the effects of China’s move on the global economy, particularly in the psyche of the US monetary authorities.

“Analysts think the actions of Chinese authorities may delay Fed action. But the Fed may have considerations that we don’t see or appreciate. So, while remaining sensitive to signals from the Fed, it is best to make sure we have the tools in place to shield our own markets from near-term shocks,” Tetangco said.

The peso closed trade on Wednesday at 46.72, 11 centavos, weaker than the previous day’s 46.61 to a dollar. The total traded volume at $901.1 million is also higher than the $765.2 million traded the previous day.

ING Bank Manila economist Joey Cuyegkeng said the peso will still likely test the 47 range in the near term as markets remain uncertain.

“In our view, Philippine economic fundamentals remain favorable and that the recent weakness is externally driven. But further weakness of Asian currencies is likely to keep the Philippine peso outperform other Asian currencies,” Cuyegkeng said.

“[The peso] is likely to test 47 in the near term and could head toward 47.40/47.50 in the absence of global response to emerging-market risks and emerging-market stability,” he added.

Cuyegkeng said the peso and other Asian currencies are still looking for the bottom of the recent weakening bout. As such, the ING Bank Manila revised their year-end peso forecast to 46.50 from the 45.5 earlier—with a “possibility of further revisions to the weaker side.”  The economist also said the upcoming release of the country’s gross domestic product growth figures would be a crucial guide for the market in the near term.

“A better second-quarter growth than the first-quarter performance would allow BSP to remain vigilant against financial market volatility that may arise from sustained market weakness. As long as the Philippine peso moves in line with Asian currencies, the BSP is likely to keep policy settings steady for the rest of the year,” the economist said.

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