Peso moves sideways; BSP vigilant

The peso on Monday moved sideways to close at 51.165:$1 from 51.17:$1 last Thursday.

At the Philippine Dealing System, the peso reached an intraday high of 51.15:$1 and a low of 51.25:$1 after opening at 51.2:$1.

The total volume traded declined to $428.65 million from last Thursday’s $494.5 million.

Markets were closed last Friday as the country celebrated the end of Ramadan.

In a text message to reporters Sunday night, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. reiterated that the “market-determined exchange rate” that the central bank was pursuing was “[not] synonymous with a passive BSP in the foreign exchange market”, which means that the BSP is ready to act in cases of extreme volatility.

Espenilla noted that the BSP “crafts rational and transparent rules of the game and implements these effectively and fairly.”

“This promotes order in the foreign exchange market so that it can distill the decisions of market players trying to figure out the right price of the dollar in peso terms as they buy and sell dollars as a consequence of their own transactions with customers. Exports, imports, remittances, tourism, education and medical expenses, business expansion overseas, portfolio investments, foreign direct investments, project finance, loan repayments… There is natural volatility in this price-discovery process because of timing and other uncertainties,” Espenilla said.

As such, Espenilla said the public should “[not] expect the peso to stand still.”

“We are on a floating exchange rate regime. This makes sense for a relatively small open economy. If one wants more certainty to insulate a transaction from exchange rate volatility, then invest in a hedge. For its part, the BSP has to practice self-restraint to allow the market to process all the information, allow it to operate efficiently, and determine market-clearing price,” Espenilla said.

“The modest and gradual depreciation of the peso in recent months, 2.8-percent year-to-date, is a reflection of this dynamic price discovery process on the back of strong and sustained imports growth as the economy hums along. There are also financial position adjustments in anticipation of normalization of interest rates in the US and other advanced economies. These have consequences for dollar supply and demand. The exchange rate needs to adjust in search of equilibrium. At its current zone, the peso has achieved healthy correction based on prevailing economic fundamentals,” according to Espenilla.

Also, Espenilla said the BSP “stands ready to intervene and neutralize the activity of speculators so they don’t define the market.”

“They can’t be allowed to distort price discovery in search of quick profits by promoting exaggerated price movements and instability. We have resources and regulatory powers to back the talk. The BSP has both capacity and resolve to act,” Espenilla added.