BSP ready to temper peso appreciation

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said it stands ready to temper the peso’s appreciation against the dollar, which an analyst said is an indication of further monetary easing next week. “We will not tolerate excesses in exchange rate movements and will not hesitate to consider other tools in our policy toolkit,” BSP Governor Amando Tetangco Jr. said in a text message to reporters. This is, by far, BSP’s boldest statement with regard to the continued strength of the peso against the dollar with previous statements only centered on allowing the currency to be generally market determined. A strong peso, while making imports cheaper, also trims the value of dollar export earnings and remittances from overseas Filipinos when converted into local money. “Peso is fundamentally supported. Our official action is to minimize excessive volatility. If the flows are structural, we will allow the peso to appreciate,” Tetangco said last Oct. 5. Since then, however, the peso has achieved new highs, the last of which was last Wednesday when it closed at 41.18 to a dollar. The closing last Wednesday was the highest in 55 months and from the last trading day of 2011 until that day, the peso already appreciated by 6.06 percent. Tetangco said BSP realizes that the country has become attractive to yield-seeking inflows abroad “as uncertainty continued to hover around the resolution of the European crisis.” Philippine interest rates stand at 3.75 percent and 5.75 percent for overnight borrowing and lending, respectively after BSP cut them thrice this year. These rates however remain above the near-zero interest rates prevailing in debt-ridden developed markets, thus, attracting investments. “The Philippines has continued to be a recipient of flows, which in turn have supported the peso. We are mindful of developments both global and domestic and we are watchful of market conduct,” the BSP chief said. Emilio Neri, an economist at the Bank of the Philippine Islands, said Tetangco’s remarks could be an indication of what will be BSP’s decision next week. “I think what the Governor is saying is that we do not want the people generating dollars for the country sort of ostracized by the appreciating peso. It’s a way of saying that it is a little overdone for the peso,” Neri said in a phone interview. - By Prinz P. Magtulis