Let market determine peso rate, says BSP

THE BANGKO Sentral ng Pilipinas on Friday made it clear that it would not prop up the peso just to tame inflation.

The peso has been strengthening in recent days, but this is due to rising inflows of foreign portfolio investments, BSP Governor Amando Tetangco Jr. told reporters.

He stressed that the BSP would not target a specific exchange rate, and that it would only intervene in the foreign exchange market to avert sharp fluctuations of the peso.

The central bank’s foreign exchange policy remains the same, that is, to allow the market to determine the currency’s exchange rate. It will intervene, by buying or selling currencies, from time to time just to prevent a steep appreciation or depreciation of the peso.

Tetangco made the statement amid speculations that the BSP would sell dollars to significantly make the peso stronger and thus tame inflation. A stronger peso makes imported good cheaper, thereby tempering the overall increase in consumer prices.

This week, the peso strengthened to the 42-to-a-dollar territory on the back of substantial demand for the local currency.

But Tetangco said the peso was being boosted by foreign investments in portfolio instruments, including stocks and bonds.

He said the surge in foreign portfolio investments was a natural consequence of the gap between the industrialized economies and emerging markets like the Philippines.

Since growth rates of the latter are much faster, Tetangco said, foreign investors tend to shift funds to the emerging markets.

Although a strong peso helps temper inflation, it has a downside: It makes Philippine exports more expensive and, therefore, less competitive.

Exporters have been complaining about the appreciation of the peso over the past year, saying a sustained rise of the currency could lead to closures of some export companies.

This is the reason why exporters have been asking the BSP to intervene in the foreign exchange market to make the peso weaker.