The peso on Wednesday slid to a fresh 11-year low of 51.77:$1 mainly on global market uncertainties over who United States President Donald Trump will appoint as head of the influential US Federal Reserve.
Wednesday’s close was the weakest since July 25, 2006’s 51.87:$1.
At the Philippine Dealing System, the peso hit an intraday low of 51.77:$1 and a high of 51.63:$1.
The total volume traded jumped to $773 million from Tuesday’s $551.2 million.
During a luncheon meeting hosted by the European Chamber of Commerce of the Philippines, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said that since the exchange rate is a policy instrument and not a target, “it is allowed to move flexibly in line with global and domestic shocks.”
“All of the fears and uncertainties in the world are reflected in the day-to-day volatility of the exchange rate. We allow it to reflect that because that is the reality the economy operates under,” Espenilla explained.
While the BSP “does do tactical intervention to keep the volatility not excessive,” Espenilla maintained that “we don’t actually define what is not excessive.”
Noting that the peso has been depreciating of late, Espenilla nonetheless said the local currency was weakening “moderately and gradually.”
“Today, it is under pressure again because of the perception that President Trump is about to appoint an anti-inflation hawk as the next Federal Reserve governor. So we allow that to reflect, as you can see the peso depreciated today,” Espenilla said.
For the BSP, “we believe that the peso is going to be generally stable over the medium-term horizon,” according to Espenilla.
“Why is that? The economic fundamentals of the Philippines today are sound—debt is low, both public and external debt; inflation is low; the economy is growing; the current account deficit, which has started to emerge, is moderate and highly financeable; and the Philippines today is a very different economy than the crisis economy in the 1980s where our reserves are negative,” Espenilla noted.
“Today, our reserves are almost nine months’ worth of imports of goods and services. We are investment grade. We have market access, even the IMF [International Monetary Fund] is borrowing from the Philippines. For the longest time, the Philippines was a prolonged user of IMF resources. Today, we are lending to the IMF so the IMF can lend to others that need the resources,” Espenilla added.
“So it’s a very different Philippines that we are dealing with, that is why we have some degree of confidence that we can survive uncertainties,” Espenilla said.
The BSP chief later told reporters that he was comfortable with the prevailing peso-dollar exchange rate level.
“This is part of the adjustment mechanism. Examine the alternative if we have to react to foreign exchange. So what are the tools of the BSP? You want us to jack up interest rate? That has a bigger economy-wide impact. So our interest rates are focused on inflation. So if foreign exchange is already beginning to influence inflation in a way that makes us breach our target, then that may warrant a response from the BSP. But as I said, we have other tools. We’ve got big reserves that we use for tactical intervention,” according to Espenilla. /jpv
Ben O. de Vera | Reporter
Image Source: Philippine Daily Inquirer