Central Bank chief: The peso is just fine

BANGKO Sentral ng Pilipinas (BSP) Governor Nestor Espenilla (Photographer: Veejay Villafranca / Bloomberg)

Despite weakening by more than a peso in only a month’s time, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said the local currency is far from a meltdown, as it is supported by the country’s healthy economic fundamentals.

“The peso is just fine. [It is] demonstrating flexibility reflecting day-to-day market conditions.  There will be volatility, runs and corrections, and the public should plan accordingly and factor in exchange risk in their decisions,” Espenilla said.

Data from the PDS Group showed the local currency slumped further to the 51-to-a-dollar territory on Thursday, hitting 51.58 against the greenback. This is a significant weakening from the 51.295 to a dollar from the previous day’s trade.

Traded volume during the day hit $878.15 million, down from the previous day’s $943.05 million.

The peso at the start of the month was also significantly lower than its level at the start of 2018, which was at 49.81 to a dollar. This means that the local currency weakened
by P1.77 over a month’s time.

But the BSP governor stepped in to calm the markets, saying the peso is likely to stabilize on its own, as the local economy remains strong amid the movement in the foreign-exchange market.

“The peso is not expected to melt down because the underlying economic fundamentals of the economy are healthy.  The BOP [Balance of Payment] deficit is very manageable and is but a reflection of an economy that’s growing rapidly in a way that is sustainable,” Espenilla said.

“We are very far from any foreign-exchange crisis given our large GIR [gross international reserves] buffer and secondary buffers, as well as investment-grade rating that guarantees ready market access for any official and commercial financing requirement,” he added.

Concerns about the weakening of the peso have been raised, as it is likely to aggravate the rising prices of imported products, such as oil, thereby accelerating inflationary pressures on top of the implementation of the tax-reform program.

IHS Markit Principal Economist Bernard Aw also said a weak exchange rate, coupled with new taxes and higher global commodity prices, will push manufacturing costs and elevate consumer price pressures in the country in early-2018.

Philippine Exporters Confederation President Sergio R. Ortiz-Luis agreed that the drop in peso’s value is not a cause for concern.

“There is not much of an effect really to exports. Everything is just an exaggeration of what should be considered as normal to the markets,” Ortiz-Luis said.

“Actually, the effect of the dollar and peso exchange is much exaggerated because if it is really undervalued, like in the 1980s and 1990s, when the government was struggling to save the peso, the effect on the economy is to the negative side. However, more or less, when we allow the peso to seek its level, I don’t think it has a strong impact to our exports, even to the economy,” he added.

Ortiz-Luis noted that the government has an infrastructure program that provides a strong backbone to the economy, and this is enough for the Philippine currency to stabilize throughout the rest of President Duterte’s term.

“The reality is, incidents, such as the rise in fuel prices, are functions and decisions made by our sources in the Middle East.

There are times that our peso weakens, there are times that is gains strength, but overall, it is performing within a manageable level,” he added.

With Elijah Felice E. Rosales

 

 

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