Espenilla downplays peso’s fall to 11-year low as part of the adjustment process
The central bank chief assured the public that the peso remained stable despite plunging to its lowest in 11 years.
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. told reporters that Philippine central bankers remain confident of the peso and its recent weakness is just part of an “adjustment process.”
On Wednesday, the peso finished the day at 51.77 or 23 centavos down from the previous day’s close and its weakest since its 51.87 finish on July 25, 2006.
He said domestic economic fundamentals remained sound with external debt still low, inflation manageable, growth firm and the current account, despite being in deficit, still “highly financeable.”
“The Philippines today is a very different economy than the crisis economy in the 1980s wherein our reserves are negative if you include the liabilities of the BSP,” he said.
Espenilla said the BSP does not need to intervene big time on the peso since the central bank has taken a market-determined policy on the foreign exchange.
“The exchange rate is a policy instrument of the BSP not a target so it is allowed to move flexibly in line with global external and domestic shocks,” he said, noting that “all of the fears and uncertainties in the world are reflected in the day to day volatility of the exchange rate.”
He considered the latest depreciation level of the local unit as moderate and gradual and assured the public that the central bank was always ready with its “tactical intervention” to address extreme volatility.
“My only point is that it is not a target for the BSP but we believe that the peso is going to be generally stable over the medium term horizon,” he said.
The central bank chief also said there was no need to adjust policy rates because of the latest peso movement because increasing the key rates, which is focused on inflation, “has a bigger economy-wide impact.”
“If the foreign exchange is already beginning to influence inflation in a way that makes us breach our target, then that may warrant a response from the BSP. But I said we have other tools. We’ve got big reserves that we use for tactical intervention,” he said.
The BSP has one of the lowest key policy rates in the world.
To date, its overnight borrowing or reverse repurchase (RRP) rate is three percent, the overnight lending or repurchase (RP) rate is 3.5 percent and rate of the special deposit account (SDA) rate is 2.5 percent.
These three represent the central bank’s Interest Rate Corridor (IRC), put in place since June 2016 to make the BSP better manage inflation and support long term growth.
As of end-September this year, the country’s gross international reserves (GIR) reached USD 81.35 billion, enough to cover 8.5 months’ worth of imports of goods and payments of services and primary income.
Meanwhile, rate of price increases continues to rise, with the September 2017 level at 3.4 percent from month-ago’s 3.1 percent.
However, average inflation rate in the first nine months this year stood at 3.1 percent, within the government’s two to four percent target for 2017 to 2019 and below the central bank’s 3.2 percent forecast for the three-year period. (PNA)