BSP prepared to stop ‘excessive’ FX volatility

The Bangko Sentral ng Pilipinas (BSP) will intervene – more so than usual – to stop excessive peso-US dollar exchange rate volatility and prevent the local currency from weakening further.

Even at Tuesday’s low of P53.49 to the US dollar, BSP Governor Nestor A. Espenilla Jr. said the peso is only moving as market dictates, and reiterated that its “medium-term stability is (still) well-supported by sound macroeconomic fundamentals.”

But, he warned, “the BSP is ready to act to prevent excessive peso volatility and overshooting due to speculative activities.”

Espenilla, in Tokyo for an economic briefing presentation, said the exchange rate market allows the peso enough flexibility that it is self-correcting. These self-correcting mechanisms “helps maintain price competitiveness, and prevents the build-up of unsustainable imbalances which in turn should help keep the balance of payments and the monetary system under control,” he told investors attending the Philippine roadshows.

The BSP will hold a monetary policy meeting today – a day ahead of a June 21 original schedule – and the market is split on whether or not the central bank will take the bait and increase interest rates for the second time in a row. It hiked key rates by 25 basis points last May 10.

Most market observers want the BSP to adjust rates another time and this soon, to help the exchange rate stabilize.

“Without monetary policy support, the peso could fall to a fresh 12-year low,” said ING Bank senior economist Joey Cuyegkeng, adding that despite steady remittances flows, the peso will continue to be on the defensive.

Espenilla is not giving any hint of what the Monetary Board will decide today. However, he did remind the market that “definite signs” abound and that inflation is infact “slowing down and may be close to peak.” The BSP expects inflation to average at 4.6 percent this year, surpassing the two-four percent target.

With the May 10 adjustment to the BSP rates, Espenilla said it is possible they will “revise downwards with more data” when it comes to the 2019 outlook which was an average 3.4 percent inflation.