The economy remains on track despite the peso’s recent weakness and reduced growth estimates, the chief of the Bangko Sentral ng Pilipinas (BSP) said.
“The peso is market-determined. It’s natural for it to show volatility as it adjusts to market conditions and all the short-term uncertainties such as increased tension in North Korea,” central bank Governor Nestor Espenilla Jr. said in a message to reporters on Sunday.
The peso touched P51 to the dollar on Friday and closed near an 11-year low of P50.98:$1, weighed down by a war of words between the United States and North Korea.
Monetary authorities, said Espenilla, do not expect the peso to go into a free fall.
“The peso is capable of correcting itself as the market calms down and digests the relevant information. Moreover, BSP will always be there strategically if volatility is considered excessive,” he said.
Espenilla noted that gross international reserves – at $80.78 billion in July and enough to cover 8.6 months of imports – would play an effective stabilizing role.
The Bangko Sentral chief also downplayed concerns about a current account deficit.
“The Philippines is an emerging market economy that wants to grow. To be sustainable, it needs to catch up on high quality investments especially infrastructure. It’s natural for it to run moderate current account deficits,” he said.
“In fact, it’s sub-optimal for it to be persistently running current account surpluses. That’s like the equivalent of deploying our own savings to the world instead of using those internally to finance our own investment needs.”
A major component of the country’s balance of payments, the current account measures the net transfer of real resources between the domestic economy and the rest of the world.
The current account reverted to a deficit of $318 million in the first quarter and the BSP has forecast that it could expand to $600 million by the end of the year, reflecting a widening trade deficit.
Lastly, Espenilla noted that a visiting IMF Mission, despite having reduced its 2017 growth forecast to 6.6 percent from 6.8 percent, had declared that the Philippine economy was doing well.
“Let’s calm down. We’re on the right track,” he said.