BSP still not worried over peso depreciation

The Bangko Sentral ng Pilipinas (BSP) still finds no convincing reason to worry about the peso depreciation which has remained at the 154-level for three weeks now. The exchange rate hit a low of

154.41 yesterday from 154.18 previous closing. The peso has lost almost nine percent or 14.50 year-to-date. The strength of the US dollar comes from the US Federal Reserve’s tightening stance. Aside from the strong greenback, the peso weakness is attributed to the high inflation which vise-versa, may have been affected by the exchange rate volatility and was partly blamed by the elevated inflation expectations.

BSP Assistant Governor Restituto C. Cruz said the BSP is not overly concerned about the exchange rate movement for as long as fundamental factors are intact. “As long as these fundamental factors and other legitimate demands remain to be the sources of depreciation pressure to the peso, and that these will not negatively impact both the growth and the inflation outlook, the BSP finds no compelling reason to be worried about the depreciation of the peso,” he said in a forum on Wednesday.

He added that as a freely floating exchange rate system, the depreciation of the peso in the past two years is “largely and in the long run" driven by fundamentals which they continue to see. “This mainly reflects rising demand for foreign exchange traceable to the surge in imports in support of the growing economy; as well as to dollar debt repayments and prepayments and outward investments,” said Cruz.

ING Bank in a latest commentary, expects the peso to recover by the end of the year to 153.1:$1 due to inflows from remittances during the holiday period and the market expectation of a hawkish BSP that “could lead to a strengthening bias for the peso during the peak of OFW remittance inflows.”

The peso first breached the 154-level last September 13 and fell to a fresh 13-year low of 154.3 on the day before the September 27 Monetary Board policy meeting where they decided to lift benchmark rates by another 50 basis points.

ING senior economist Joey Cuyegkeng said there is still high demand for the US dollar that could seasonally peak this month. “Import demand is likely to remain strong and see a seasonal peak by mid-month (October) as producers prepare for Christmas. The relief after the peak of import demand is part of the mediumterm trend of rising imports and widening trade gap as domestic demand growth remains strong,” he explained.