Phl well insulated vs external shocks – BSP
A favorable external payments position and a flexible peso have mitigated the adverse effects of external shocks, according to the Bangko Sentral ng Pilipinas.
BSP Governor Amando Tetangco Jr. said the continued build up of the country’s foreign exchange reserves and the flexibility of the peso would help address external and domestic risks.
“The country’s favorable external payments position has mitigated the adverse effects of external shocks. The flexibility of the peso has been our first line of defense against the uncertainty and volatility of the global market,” he said.
Latest data from the BSP showed the country’s gross international reserves ( GIR) hit a record $85.5 billion as of end-July and is adequate to cover 10.5 months’ of imports of services as well as income and is also equivalent to six times the country’s short-term external debt.
“Our high FX reserves have provided greater confidence to business and investors on the country’s liquidity position,” he added.
However, the BSP chief said the Philippines is not completely insulated from the volatilities in the global market.
“The Philippine peso would occasionally weaken against the US dollar, moving in sync with other currencies in the region on account of sentiment change or developments outside our national borders,” Tetancgo said.
Nevertheless, he pointed out the country’s firm macroeconomic fundamentals, investment grade status, ample GIR, and steady foreign exchange inflows from overseas Filipino remittances and receipts from the business process outsourcing sector could support a broadly stable real effective exchange rate.
According to Tetangco, the Philippines faces external risks from the weak world economic outlook, uncertainty and divergence in global monetary policy settings, and volatility in oil prices.
On the domestic front, he warned weather disturbances could exact a toll on both growth and prices.
Tetangco said the peso is expected to remain sensitive to the concerns over global economic and financial developments.
“Nonetheless, steady foreign exchange inflows and the country’s firm macroeconomic fundamentals could continue supporting a broadly stable peso,” he added.
The Development Budget Coordination Committee has set an exchange rate assumption of 46 to 48 to $1 between 2016 and 2017. The peso has strengthened to 46.62 to $1 as of Sept. 2 from 47.12 to $1 last Jan. 4.
Results of a survey conducted during Bloomberg’s FX16 symposium in Manila showed the peso is expected to be the best performing Asian currency against the US dollar.
About 55 percent of the market participants see the peso outperforming other Asian currencies pointing to a higher level of confidence in the future of the Philippine economy while 33 percent were optimistic about the Japanese yen.
The survey showed 86 percent of the respondents see the peso stable at 46 to 48 against the greenback.