September 25, 2017, 1:40 am
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BSP: No free fall for peso

The Bangko Sentral ng Pilipinas yesterday said  monetary officials do not see the local currency doing a free fall even if it has breached the P51 to a dollar level on Friday.

Nestor Espenilla, BSP governor, said the peso is market-determined and that the currency is capable of correcting itself as the market calms down and digests the relevant information.

“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 credit rating,” Espenilla said.

“BSP will always be there strategically if volatility is considered excessive. We have a huge pile of foreign currency reserves to play an effective stabilizing role,” Espenilla added.

Monetary officials have said it does not meddle with the foreign exchange rate due to its market-determined policy.

But the BSP may join the daily trading only to address extreme volatility.  The BSP uses the foreign currency reserve it holds for this.  

This foreign exchange operation is among the reasons for the decline in the gross international reserves (GIR), which as of end-July reached $80.79 billion from $81.32 billion the previous month.

“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,” Espenilla said.

The peso on Friday closed at P50.98 after hitting P51.08 on early trade, a 11-year low when the currency closed at P51.06  on Aug.  29, 2006.

Friday was the peso’s fifth day of decline.  

It has lost 2.62 percent since the start of the year, making it the region’s worst performing currency.

Traders and analysts said the depreciation was due to rising risk aversion as investors were unnerved by fiery rhetoric between the United States and North Korea.

“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,” Espanilla said.

He said  the Philippines is an emerging market economy that wants to grow. 

“To be sustainable, it needs to catch up on high quality investments especially infrastructure. It’s natural for it to run moderate current account deficits. In fact, it’s sub-optimal 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,”  Espenilla said.

Data from the BSP showed the country’s current account (CA)  position is now in deficit “because of higher importation to meet rising domestic demand.”

In the first quarter of 2017, the CA component of the balance of payment (BOP) registered a deficit of $318 million.

Economists say this is acceptable as the higher importation is due to domestic expansion.

Most emerging Asian currencies also fell on Friday led by the Korean won which slipped up to 0.5 percent on its third day of downward trend.

The Chinese yuan fell 0.3 percent while the Singapore dollar lost 0.2 percent.
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