Monetary authorities will “back the talk” by using regulatory tools to curb speculative activities in the foreign exchange market, central bank Governor Nestor Espenilla Jr. said on Monday.
“The BSP (Bangko Sentral ng Pilipinas) stands ready to intervene and neutralize the activity of speculators so they don’t define the market,” Espenilla told reporters.
“We have resources and regulatory powers to back the talk. The BSP has both capacity and resolve to act,” he added.
The Bangko Sentral chief also reminded the public that monetary authorities craft “rational and transparent rules” that would be implemented “effectively and fairly” to promote order in the foreign exchange market.
“There is natural volatility in this price discovery process because of timing and other uncertainties,” Espenilla noted.
“Don’t expect the peso to stand still. We are in a floating exchange rate regime. This makes sense for a relatively small open economy. If one wants more certainty to insulate a transaction from exchange rate volatility, then invest in a hedge,” he added.
Espenilla said the Bangko Sentral had to practice self-restraint to allow the market to process information, operate efficiently, and determine market-clearing prices.
He said the depreciation of the peso in recent months — described as gradual and modest — was a reflection of the price discovery process where factors such sustained imports growth and the normalization of interest rates in the US and other advanced economies are also being considered by players.
“These have consequences for dollar supply and demand. The exchange rate needs to adjust in search of equilibrium. At its current zone, the peso has achieved healthy correction based on prevailing economic fundamentals,” Espenilla claimed.
Over the weekend, London-based research firm Capital Economics said the peso’s weakness was not a major threat to the economy given subdued inflation and the country’s relatively low foreign currency debts.
The peso gained half a centavo on Monday, closing at P51.165 to the dollar from P51.17:$1 last Thursday despite news of a hydrogen bomb test by North Korea. The currency slipped into P51:$1 territory last month on heightened fears of war on the Korean peninsula.
Some analysts expect the peso to end the year at P52 per dollar.