The continued weakening of the peso should not surprise investors given uncertainties in global financial markets that have sent most, if not all emerging market currencies down against the surging US dollar.
The Bangko Sentral ng Pilipinas (BSP) said the country should take solace in the fact that the country’s solid macroecnomic fundamentals should allow the economy to emerge from the current storm unscathed.
“The weakening of the peso is not totally unexpected just like regional currencies because there remains uncertainty about the speed and duration of the taper,” BSP Governor Amando M. Tetangco Jr. said late Friday.
“That’s what’s causing the volatility,” he told reporters.
He said the BSP would maintain a free-floating policy for the peso, participating in the foreign exchange market only to smoothen out spikes in the currency’s value.
His comments came after the peso breached the 45-to-$1 level last week for the first time since 2010 due to the release of positive economic data from the US. Last Friday’s close, 45-to-$1, was 29 centavos weaker week-on-week.
A stronger US economy is expected to prompt the US Federal Reserve to accelerate the scaling back of its monthly bond-buying program, which was first introduced in 2009 to prop up the world’s largest economy.
Tetangco also noted the ongoing rebalancing in the world economy—a result of improving conditions in advanced nations and slowing growth in emerging markets—has resulted in fund managers re-evaluating their investment portfolios.
“But macroeconomic fundamentals of the Philippines remain sound and external liquidity position remains healthy,” he said.
He said the country should have no problem posting another balance-of-payments (BOP) surplus this year, which would prop up the peso once volatile conditions die down.
The BOP summarizes all transactions between the Philippines and the rest of the world. A surplus means the country earns more dollars than it spends.
“Significantly, that’s due to a current account surplus,” Tetangco said, citing the component in the BOP that accounts for income from remittances, trade, and revenue from the business process outsourcing and tourism industries.