BSP ready to address wild forex swings

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@paolomontecillo

11:18 PM August 27th, 2013

By: Paolo G. Montecillo, August 27th, 2013 11:18 PM

The Bangko Sentral ng Pilipinas (BSP) stands ready to control spikes in the foreign exchange market that may lead to higher consumer prices, which may choke the country’s growing economy.

BSP Governor Amando Tetangco Jr. on Tuesday said the peso’s recent weakness, caused mainly by the pullout of foreign funds from emerging markets like the Philippines, has yet to become a source of concern for local economic managers.

“If it was moving out of line, then that may be a basis for the BSP to try and smooth the peso’s movements,” Tetangco said.

The peso fell to a more than two-and-a-half-year-low of 44.50 against the greenback on Tuesday amid lingering concerns over the tapering of the US Federal Reserve’s monthly asset purchases meant to keep interest rates low.

The local currency’s drop also came amid pending military intervention by the US in Syria following reports of the latter’s use of chemical weapons on its citizens.

So far this year, the peso’s average value was 41.50 against the dollar. This was well within the BSP’s assumed average of 41 to 43 against the greenback for the year.

For now, Tetangco said the BSP’s foreign exchange policy would remain the same. “We allow the peso to respond to market forces but with scope for BSP participation in the market to avoid excessive volatility in the exchange rate,” he said.

He said the BSP would consider more significant intervention in the foreign exchange market if the peso would continue to depreciate to the point of affecting consumer price movements.

Tetangco emphasized that there was enough liquidity in the local economy to avert any shortage of cash caused by capital flight that could slow down the country’s growth. The BSP also had ample reserves that could be used to ensure that there were enough dollars to pay for the country’s import needs.

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