As peso hits 53 zone, BSP mulls over options

A bank teller counts 500-peso bills in Manila.

THE Bangko Sentral ng Pilipinas (BSP) will likely tread complex waters on next week’s monetary policy setting meeting, as its chief on Wednesday said they will be evaluating a “very rich” and “broad range of information” during the upcoming assessment.

BSP Governor Nestor A. Espenilla Jr. told reporters that, while anchoring inflation remains to be the Central Bank’s top priority, the Monetary Board is looking to consider other aspects of the economy come June 20, on their fourth monetary policy meeting for the year.

Espenilla said this on the day the local currency moved to breach the P53 territory and hit a fresh 12-year low on Wednesday’s trade.

“Recent developments on inflation and economic activity are key inputs, but these are certainly not the only consideration,” Espenilla told reporters on Wednesday.

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The local currency market closed trade at 53.23 to a dollar level on Wednesday, more than a quarter of a peso weaker than the previous day’s peso value of 52.95 to a dollar.

The total traded volume during the day was at $410.37 million, slightly up from Monday’s $389.5 million. Wednesday’s peso value is the weakest level for the local currency in more than a decade, or since the peso hit 53.55 to a dollar on June 29, 2006.

While a weaker peso value is also beneficial for the economy as it boosts the purchasing power of remittances sent by overseas Filipino workers, its depreciation raises concerns of inflation in higher imported goods, particularly its potential effect on local oil prices.

Worries on inflation and the BSP’s upcoming decision on its monetary-policy stance are also seen to have dampened investor sentiment in the short term, including the foreign investors playing in the local currency market.

International financial giant Deutsche Bank also earlier flagged the BSP’s “mixed signals” in its resolve to tighten monetary policy in the economy.

The bank’s economist Michael Spencer said, in particular, that the recent move of Espenilla to cut the banks’ reserve requirement ratio anew “added to the sense among investors that the Central Bank is not trying to tighten policy,” thereby adding pressure to the peso.

The BSP chief admitted that the Monetary Board will have to look at a spectrum of indicators in the local economy, given recent developments.  “It’s a fairly complex environment that we need to navigate,” Espenilla said.

“We’ll be examining closely all the potential drivers of future inflation through the various transmission channels as affected by global developments, expectations formation and uncertainty,” he added.

Key rates cut

In its previous meeting in May 10, the BSP decided to hike its main policy rates by 25 basis points to 3.25 percent, aiming to curb inflationary pressures in their policy horizon.

The BSP last made such a policy move to curb inflationary pressures in 2014, when inflation threatened to rise above their target for the year. Latest inflation numbers show the growth of consumer prices hit 4.6 percent in May, significantly above the BSP’s 2-percent to 4-percent annual inflation target.

Espenilla earlier said that while inflation seems to be “losing momentum,” the BSP still expects this to rise further towards the end of the year and peak around the third quarter before going back to target range in 2019.

The BSP also said on Wednesday that the Monetary Board is expected to hold its next monetary policy meeting on June 20. The schedule has been moved a day earlier from its original June 21 date due to “logistical” issues, according to Espenilla.

 

 

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Bianca Cuaresma graduated cum laude from the University of Santo Tomas (UST) with a degree in AB Journalism. She was with the BusinessMirror during her internship in 2012 where she was assigned at the Department of Foreign Affairs (DFA) beat. She continued to be of service to the paper after she graduated in 2013. In 2014, she was awarded as the Reporter of the Year by the paper for her coverage in the Bangko Sentral ng Pilipinas (BSP). She is a BusinessMirror reporter for 3 years now, and has covered general assignments and agencies related to banking and finance in the country.