BSP unfazed by weakening peso

The government posted a budget surplus in August as revenue collection grew by a much faster pace than expenditures.

The peso’s recent weakness was due mainly to external development and should not be taken as a sign of investor sentiment toward the Philippines turning sour, the central bank chief said on Wednesday.

Governor Amando M. Tetangco Jr. of the Bangko Sentral ng Pilipinas (BSP) said monetary officials would keep its hands-off policy on the movement of the local currency, stepping in only to stop sudden spikes.

“The peso weakness over the past couple of days is partly due to real demand for specific import requirements and partly due to some portfolio adjustment of funds in reaction to US Fed tapering concerns,” Tetangco told reporters.

Earlier this week, the peso breached the 44-to-$1 level for the first time in three months to close at 44.15: $1 on Monday, and 44.29: $1 the day after. Tuesday’s close was the weakest for the local currency in more than three months.

“We are closely monitoring developments and, as is our policy, will maintain a strategic presence in the market as needed to curb excessive volatility in the foreign exchange movements,” Tetangco said.

The US dollar has surged since the start of the week following the release of several key pieces of US economic data that bolstered expectations that the Fed would start scaling back its monetary stimulus this month.

Last week, official data showed the American economy grew at a better-than-expected rate of 3.6 percent in the third quarter of the year. This report was preceded by a report that showed US unemployment fell to 7 percent in November—its lowest since the global financial crisis began.

St. Louis Federal Reserve Bank President James Bullard said the improvement in the US job market and stronger economic growth might spur monetary officials to start tapering asset purchases this month. The policymaking Federal Open Market Committee (Fomc) will hold its two-day meeting next week to discuss the fate of the asset purchases.

The US Fed’s bond-buying program involves the purchase of $85 billion worth of US treasuries and mortgage-backed securities every month—a move that aims to keep interest rates down and spur the world’s largest economy.

This pushed foreign fund managers to search for higher yields in emerging markets like the Philippines, propping up asset prices and bringing down interest rates.