Weak peso due to global market turmoil — BSP

STRONG dollar demand and increased uncertainty on global markets have been driving the recent weakness of the peso and the wide external payments deficit posted last month, a Bangko Sentral ng Pilipinas (BSP) off icial said, although noted that such movements are “episodic.”

BSP Deputy Governor Diwa C. Guinigundo said “magnified” demand for the dollar has been driving the peso’s slide, with the US currency viewed as a safe haven currency amid external volatility.

Mr. Guinigundo said higher dollar flows, yearend foreign debt payments made by Philippine corporates and the government, and global developments have weighed on the peso’s performance.

The Federal Reserve likewise announced a 25-basis-point rate hike after its Dec. 13-14 review and flagged three possible rate increases in 2017. In November, Republican candidate Donald J. Trump won the presidency, which was followed by plans for fiscal stimulus that could stoke US economic growth and inflation.

These events added to market concern over the United Kingdom’s vote to leave the European Union, the central bank off icial said.

“We continue to see the same factors that drive negative market sentiment. Again, we always emphasize that the macroeconomic fundamentals remain strong,” Mr. Guinigundo said in a briefing yesterday at the BSP Complex in Manila.

For one, Mr. Guinigundo pointed out the surge in the import of capital goods, which comes as the government ramps up infrastructure spending.

The peso weakened against the dollar yesterday to again touch the P50 to the dollar level, before closing at P49.999. It last flirted with the P50 mark during intraday trading on Nov. 24, before ending that session at P49.98.

The central bank also reported a $1.671-billion deficit in the November balance of payments ( BoP), the widest in nearly three years that also sent the year-to-date tally to a $206-million deficit. This compares to a downwardrevised projection of a $ 500- million surplus for 2016, which was adjusted in light of trends in the global outlook, the BSP said last week.

Mr. Guinigundo said the latest BoP data and the peso’s performance reflected heightened uncertainty over the past few weeks, which has jolted financial markets.

“These are episodic movements of the peso. We always monitor the movement of the peso. The implications on inflation are something that we also monitor,” Mr. Guinigundo added, while noting that the authorities are “less concerned” about the impact of a peso depreciation on inflation as the passthrough costs of exchange rate movements have “gone down” in recent years.

“The last quarter of the year, particularly November and December, are very challenging because of negative market sentiment. People are buying more dollars than perhaps necessary. If this is the case, the real demand for dollars is magnified — and therefore the peso… continues to weaken despite the strong macroeconomic fundamentals.”—