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BSP: Peso to regain stability amid solid macroeconomic fundamentals

business / Currencies
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BSP: Peso to regain stability amid solid macroeconomic fundamentals

By: - Reporter / @bendeveraINQ
/ 02:47 PM August 21, 2017

Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. on Monday said the peso is expected to regain stability in the near term on the back of solid macroeconomic fundamentals even as it dipped to nearly 11-year lows during the past two months.

“Some commentators of late would have us judge negatively the state of the Philippine economy merely on the basis of the depreciating trend of the peso against the US dollar. In particular, the peso is compared in unfavorable light against ‘stronger’ regional currencies. That’s a rather simplistic way to look at it,” Espenilla said in a text message to reporters.

Since late June, the peso has been trading at the 50-51:$1 levels, its weakest since August and September 2006.

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Last Friday’s close of 51.49:$1 was the weakest since Aug. 24, 2006’s 51.6:$1.

But for Espenilla, “the better way to gauge the economy is to evaluate its progress toward delivering on things that ultimately matter to the people—low inflation, growth and jobs.”

The Philippine economy grew 6.5 percent in the second quarter, among the fastest in the region, while inflation as of end-July averaged 3.1 percent, within the government’s target range of 2-4 percent for 2017.

“Each economy faces its own unique challenges and should therefore be deliberately implementing policies that suit its circumstances and needs. The Philippines is doing the correct thing in prioritizing a more investment-led economic growth. Allowing the peso to depreciate gradually to a more appropriate level is fully consistent with that strategy,” Espenilla said.

“However, the BSP is very mindful that such adjustment may create market uncertainty if not well explained. So we communicate and explain,” Espenilla added.

Last week, Espenilla explained to senators that the weakness of the peso was partly due to external developments such as the tension between the United States and North Korea, as well as market concerns on the current account deficit amid a surge in importation of capital goods due to the government’s infrastructure push.

“Speculators may want to take advantage by exaggerating for financial gain an otherwise healthy price correction to recover some of the price competitiveness. The BSP will not tolerate such speculative behavior and stands ready to use its very ample international reserves and deploy its full policy and regulatory arsenal if necessary,” according to Espenilla.

As such, Espenilla said the BSP deemed that “the peso has now sufficiently adjusted and can be expected to regain relative stability going forward.”

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“This soft landing is reinforced by effective discipline in fiscal management and a well-designed and well-executed public investment program,” the BSP chief said.

“Pursuing a flexible and adaptive exchange rate policy enables the BSP to keep its interest rate policy settings squarely focused on achieving the inflation target while dampening consumption and supporting a more investment- and export-led growth that the economy needs to sustain its strong momentum over the long haul,” he added. JE

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TAGS: BSP, Business, currency, economy, Espenilla, Peso, solid macroeconomic fundamentals
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