Peso touches 51 to $1

The peso yesterday touched the 51:$1 level, hitting an intraday low of 51.08 during morning trade although it eventually settled at 50.98.

The peso’s close at the end of the week stayed at an almost 11-year low, the weakest since Aug. 29, 2006’s 51.05 to $1.

The local currency opened at 50.90, also the intraday high, although weaker than Thursday’s close of 50.795 to $1.

The total volume traded was nearly unchanged at $690.1 million from $692.55 million last Thursday.

Banco De Oro Unibank Inc. chief market strategist Jonathan L. Ravelas said the foreign exchange was “just reacting to the risk-off theme as the rising geopolitical tensions are creating a risk-off and flight to quality.”

Ravelas was referring to the tensions between the United States and North Korea, feared to escalate into a nuclear war.

For the part of the Bangko Sentral ng Pilipinas, Governor Nestor A. Espenilla Jr. told reporters that they were constantly “monitoring peso developments for excessive short-term volatily not consistent with underlying economic fundamentals and take appropriate actions when necessary.”

“We recognize that the market is also often self-correcting,” Espenilla added.

Also, “the recent concern on the current account isn’t helping,” Ravelas said.

For 2017, the BSP expects the current account to swing to a deficit of $600 million from last year’s $600-million surplus as the projected 10-percent growth in imports would outpace the 5-percent exports expansion.

During a recent House appropriations committee briefing on the proposed 2018 national budget, BSP Deputy Governor Diwa C. Guinigundo said “the recent depreciation of the peso reflects market concerns on the widening of the country’s current account despite the fact that the country’s macroeconomic fundamentals continue to be sound.”

“It should be emphasized that the current account position signals the country’s higher propensity to import as the country gears up for higher growth momentum. The Philippines is one of the fastest-growing economies in the region, arguing for higher imports to support the projected higher growth path,” Guinigundo said.

The Philippine economy is expected to grow 6.5-7.5 percent this year and 7-8 percent yearly starting next year until 2022, to make it one of the fastest growing in the region.

While the current account and overall balance of payments swung to a deficit, Espenilla pointed out that “the country’s external payments position remains very sound and sustainable.”

At the end of the first half, the country’s balance of payments position stood at a deficit of $706 million. In June, the BSP said it expects the BOP position to settle at a $500-million deficit by yearend such that it will be the second consecutive year that more dollars would leave the country than flow in.

But for Espenilla, “the expected stable stream of remittances from overseas Filipinos and dollar receipts from the business process outsourcing sector will help support the balance of payments and keep the volatility of the peso to an acceptable magnitude, even as it adjusts to economic fundamentals.”

The BSP expects cash remittances from Filipinos working and living abroad to reach another record-high of $28 billion by yearend, while BPO revenues reached almost $23 billion last year.

Also, “our foreign exchange reserves are at a very robust level that enables the BSP to effectively manage against violent swings to global liquidity conditions,” Espenilla said.

The latest preliminary BSP data nonetheless showed that the country’s dollar reserves slid to a three-month low of $81.4 billion in June partly as global gold prices fell alongside a weaker peso. The BSP had projected gross international reserves to slightly decline to $80.5 billion in 2017, equivalent to 8.3 months of import cover, from end-2016’s $80.7 billion.

For Guinigundo, “the recent decline of the peso should have minimal effects on the country’s macroeconomic conditions over the medium term.”

“For instance, it takes a P1 per dollar depreciation to raise inflation by about 0.15-0.2 percentage point over a two-year period. It’s limited impact on the price level gives the BSP the additional flexibility to take a lower view on the peso,” according to Guinigundo.