Peso rate concern is ‘overdone’ – Espenilla
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said that while the local currency’s volatility and “possible sharp depreciation” is a source of worry for both regulator and the market, it is still a manageable concern.
“The depreciation of the peso has been a cause of some market unease (but) such concern is overdone,” Espenilla told a forum recently.
Espenilla said the peso‘s “moderate and controlled depreciation” is just a reflection of the country’s “bullish economic growth” as evidenced by the increase in imports, and the higher direct and portfolio investments abroad for expansion and risk diversification. He also noted both the government and corporate sector’s debt prepayments to “manage foreign exchange risks” as well as hot money outflows.
“We see these as healthy adjustments,” he stressed.
According to Espenilla, they continue to see the peso as being “broadly stable” medium-term since it is “backed by strong underlying economic fundamentals, ready market access, and robust international reserves” of almost $81 billion. “We have additional liquidity buffer as well from our regional safety net arrangements,” he added.
Espenilla said that “at the current range (R50-R50.60:$1), the peso’s competitiveness has improved back to 2008 levels as measured by the real effective exchange rate (REER) index.”
The peso volatility is one of four issues the BSP chief emphasized during a banker-hosted forum, that beset markets these days. The others were the global financial conditions and the “magnitude of tightening;” the divergent monetary policies of advanced economies that will add to market volatility; the “perceived risk of overheating in the economy;” and the fintech impact on the banking system.
“We are ready to deploy the full array of our monetary policy toolkit to deal with possible market volatility as policy settings evolve and normalize in the US and other advanced economies. We are also watchful of geo-political risks that could pose challenges to the country’s trade, remittances, and foreign direct investments,” assured Espenilla.
Espenilla reiterated that talk of overheating risks is still an overplay but that they “remain very vigilant to avoid it.”
“We continue to closely monitor credit growth and risks to overheating, even as we stand ready to deploy macroprudential measures if necessary, to deal with sectoral issues in a targeted way,” he said.