The Bangko Sentral ng Pilipinas (BSP) on Wednesday said that it is ready for market intervention in case of excessive peso volatility.
BSP Governor Amando Tetangco Jr. said that the volatility of the Philippines peso remains within the range of volatilities of currencies in the Asian region.
He noted that exchange rate determination to the market is one of the objectives of the monetary authority to address volatility.
“But we would be prepared to participate in foreign exchange trading if there’s excessive volatility, so we want to minimize the volatility. But the fundamental foreign exchange policy remains,” he said.
Tetangco added that the BSP is also monitoring these volatilities and ensuring that there are tools available both in terms of monetary policy tools as well as macroprudential measures.
“The tools are there and if there’s a need to deploy any combination, and if the situation requires it, then we’re good,” he said.
Meanwhile, the BSP governor further said that the Monetary Board will consider the foreign exchange movement and other international developments in its upcoming policy meeting.
He noted that the factors that the board will look into the meeting are the direction and the magnitude of capital flows, and its relation to the inflation target as well as the developments in the other sectors of the economy that will have an implication on future inflation.
Inflation rate is one of the factors that the central bank takes into account in its policy-setting mandate, which influence the rates that local banks charge on their loans.
The BSP has kept its key policy rates since October 25, 2012, wherein it reduced the interest rate for the reverse repurchase or RRP facility from 3.75 percent to 3.5 percent, while overnight lending or repurchase facility was retained at 5.5 percent. Reserve requirement ratios were kept steady as well.
On the other hand, Tetangco said that the BSP is also watching if the peso movement is inflationary, since there were countervailing factors or forces like commodity prices.
“This is partly because of the expected global recovery is also beginning. Therefore the demand for commodities is beginning to rise. At the same time, all prices have remained more or less within the safe range partly because of the demand and also partly because of the increase in supply,” he explained.
Besides the countervailing factor, he mentioned that the pass-through of exchange rate movement to the inflation rate has gone down over the years because of gains in efficiency, and productivity in the domestic economy.
Exchange-rate pass-through is the percentage change in the local currency import prices resulting from a 1-percent change in the exchange rate between the exporting and importing countries.