The central bank continues to see healthy, vibrant trading on the local currency market, but said on Tuesday it would not just stand back when the exchange rate started showing “disruptive or excessive” movements beyond what is already more than a 10-year low.
The local currency finished Tuesday trade at P50.25:$1, losing 2 centavos more from its value on Monday at P50.23:$1, which already marked its weakest level since it settled at P50.32:$1 on September 26, 2006.
On Tuesday, it opened even weaker at P50.30 to $1, before trading in a wider range of between P50.28 and P50.35, a new 10-year low, though intraday.
“Our surveillance shows there is market demand to service legitimate dollar requirements and that’s moving the market,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters in a text message.
Tetangco said some market participants were also taking positions in the US dollar based on their perception of where the US currency was heading.
“These are normally part of a healthy vibrant market. But this is not to say that we will stand back when we see that the movements are disruptive or excessive,” he said.
Global market pressures
For his part, BSP Deputy Governor Diwa Guinigundo said the peso continues to adjust to the uncertainty mostly from the global financial markets.
“While global economic recovery is a work in progress, the fallout from the US Fed interest rate hike and the populist sentiment in Europe could dent market sentiment and with it bring down regional currencies including the peso,” he said.
The US Federal Reserve Chair Janet Yellen had made it clear that interest rate hikes were coming, and could happen any time this year.
Meanwhile, the European Commission Consumer Confidence Indicator came out far lower than expected, according to the latest reports. It printed -6.20 against market expectations of -4.90.
A recent opinion poll also showed that Marine Le Pen was gaining ground against her rivals for the French election. OpinionWay showed that support for Le Pen rose to 27 percent, while Emmanuel Macron and Francois Fillon stayed unchanged at 20 percent each.
External payments deficit
“We have also some domestic concerns like the external payments deficit in January, but again for me this is episodic. It’s one of 12 data points for 2017 in which we expect some rebound from the small deficit in 2016,” Guinigundo said, referring to the $9-million balance of payments deficit in January.
Looking ahead, he said the BSP continues to see the resiliency of the economy. “Public spending, in all likelihood, supported by higher revenues and the proposed tax reform, will buttress domestic demand and keep the growth momentum,” he said.
Guinigundo also sees remittances and business process outsourcing revenues, along with government spending, continuing to drive economic growth.
The peso dollar rate is no different, he stressed.
“Under an independent float, the peso will reflect market volatilities, but at the end of the day, will be supported by our robust macrofundamentals. The BSP will keep its eye on the ball and its feet on the ground,” he said.
University of Asia and the Pacific economist Victor Abola said that means the central bank is trying to ease speculation that adds pressure on the peso.
“What the BSP is trying to tell banks is not to speculate and add to the pressure on the peso,” he said.
Abola also noted there is a tendency for the peso to depreciate because of strong demand for the greenback as US economic growth continues to accelerate.
“Besides, the US has been performing well and investors are putting some money in dollar assets,” he said.
The latest data showed that the US leading economic index (LEI) – the Conference Board’s economic forecast for the US economy – climbed 0.6 percent month-on-month in January from an estimated 0.5 percent in December.