AS markets expect the Bangko Sentral ng Pilipinas (BSP) to intervene in the recent market volatilities, particularly in the foreign-exchange trade, Central Bank Governor Nestor A. Espenilla Jr. said timing is key to market intervention in financial stability.
In the Financial Stability Coordination Council’s (FSCC) quarterly meeting on Tuesday, Espenilla recognized the increased volatility in financial markets due to local and international developments.
“Financial markets are extraordinarily volatile this year and the FSCC continuous to assess the possible impact to the Philippines of changing macro-financial conditions,” said Espenilla, who also chairs the FSCC.
“The challenge is to intervene early enough so that systemic risks do not build up, but not too early that they derail our own growth momentum. We continue to be cognizant of this delicate balance, nurturing innovations and ideas while providing appropriate prudential oversight,” the governor added.
As of last week, the Philippine currency is the third worst performer among Asian currencies this year.
On Tuesday the peso weakened to 53.39 to a dollar, from the previous day’s 53.37 to a dollar. The total traded volume on Tuesday is slightly lower at $693 million, from the $786.4 million seen in the previous day, data from the Bankers Association of the Philippines (BAP) showed.
Compared to last year, the peso averaged at 50.875 to a dollar in August 2017, about P3 weaker from its current level.
Latest data from the BSP showed the country’s dollar reserves are already taking a hit due to the BSP’s foreign-exchange operations.
Just last week, the Central Bank reported that the Philippines’s gross international reserves (GIR) slipped to $76.89 billion in July.
The July GIR is lower than the $77.53 billion level seen in the previous month and the $81.07 billion seen in July 2017.
ING Bank Manila economist Joey Cuyegkeng said the recent action of the BSP—a 50-basis-point hike in its main policy rate—will likely soothe the winds in the foreign-exchange market.
Cuyegkeng, however, warned that the peso will still come under pressure not just from a widening trade and current account deficit but also from the tightening of other major central banks.
“A trade dispute between the US and China could intensify and could open another period of weak emerging market currencies,” the economist added.
Aside from financial market intervention, the FSCC also discussed proposals to strengthen long-term finance, enhance valuation practices for market instruments and broaden its communication initiatives in an effort to help sustain Philippine growth and in support of the infrastructure development initiatives of the government.
The FSCC Executive Committee is composed of the principals and the most senior officers of the Bangko Sentral ng Pilipinas, the Department of Finance, the Bureau of the Treasury, the Insurance Commission, the Philippine Deposit Insurance Corp. and the Securities and Exchange Commission.
Image credits: Carlo Gabuco/Bloomberg