The Bangko Sentral ng Pilipinas (BSP) ruled out a free-falling peso last Friday when the exchange rate moved past the psychologically important 51 per dollar rate as the currencies market winded down.
BSP Governor Nestor A. Espenilla Jr. said the peso should not crash, despite recent weakness and the exchange rate corrects when markets finally see the country’s macroeconomic fundamentals remain strong.
The peso is market determined. It’s natural for it to show volatility as it adjusts to market conditions and all the short-term uncertainties, such as increased tension in North Korea.
We don’t expect it to do a free fall because our economic fundamentals now, unlike before, are solid and very strong. This is reflected in our investment grade rating. The peso is capable of correcting itself as the market calms down and digests the relevant information.
Last Friday data from the PDS showed the peso at 50.98 per dollar, or 10.5 centavos weaker from the previous’ day’s 50.795 per dollar. It actually started trading at 51.05 such that the morning trades averaged 51.027 but would eventually recover by day’s end.
The total traded volume last Friday aggregated only $690.1 million.
Espenilla said the BSP will “always be there strategically if volatility is considered excessive”.
“We have a huge pile of foreign exchange reserves to play an effective stabilizing role,” he added.
Latest data from the BSP showed the country’s gross international reserves (GIR) in July at $80.786 billion and enough finance 8.6 months’ worth of imports of goods and payments of services and income.
It was also equivalent to 5.5 times the country’s short-term external debt based on original maturity and 3.7 times based on residual maturity.
Espenilla also addressed worries on the Philippines’s weaker current account position this year.
“The Philippines is an emerging market economy that wants to grow. To be sustainable, it needs to catch up on high-quality investments, especially in infrastructure. It’s natural for it to run moderate current account deficits. In fact, it’s suboptimal for it to be persistently running current account surpluses. That’s like the equivalent of deploying our own savings to the world instead of using those internally to finance our own investment needs,” he said.
“As the recent IMF [International Monetary Fund] Mission observed, we’re doing well and the economy is not overheated. Nonetheless, the BSP stands vigilant. Let’s calm down. We’re on the right track,” he added.
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We have a pertinent query to the fumbling trio, The Three Stooges, of the DBCC – LEDAC and the giggling gaggle in the BSP’s Monetary Board:
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Is there a viable alernative policy alternative to the National Government’s bond issuance and foreign borrowing for the build build build infrastructure projects financing?
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Reminder to the DBCC & MB: Dollar -denominated foreign bond issuance taps into existing money supply liquidity of foriegn non – bank institutional investors by withdrawal of purchasing power.
The pigovian negative externality, due to non – ergodic, non equilibrial market imperfections, black swan event or a ‘minsky moment’ is as follows:
Crowding out of domestic private corporate borrowers from the local and foreign bond market;
The socializing of national deficit and debt;
Transfer of debts to future generation of taxpayers;
Transfer of resource (tax revenue) from national government to Rich impersonal institutional foreign investors;
Moral hazard of bond speculators collectively shorting bond holdings, leading to a cascading sell off of bonds, will lead to a down grade of our sovereign rating, higher capital cost, capital crunch, unemployment, bankruptcy, etc.
Is there a better way to raise the needed funding?