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By Chino S. Leyco, Reporter
THE Bangko Sentral ng Pilipinas (BSP) said
Tuesday that a sudden rebound of the dollar against the peso will
make business in the country more difficult.
BSP Gov. Amando M. Tetangco Jr. said a sharp
rebound of the US currency could likely affect inflation
expectations, as increased volatility in the exchange rate would
create uncertainty in the pricing and planning of businesses.
“A sudden change in the trend for the dollar
could also have an impact on the direction of capital flows. This is
why our policy has always been to leave the exchange rate
essentially to the market but act only to smoothen volatilities,”
Tetangco said in an e-mail message to reporters.
The BSP earlier expressed partiality for a
strong peso against the dollar, citing the beneficial effects this
has on the overall economy.
It said a strong local currency helps dampen
inflationary pressures arising from increases in the world price of
oil, metals and certain agriculture commodities. It estimates that a
peso appreciation results in a 0.04-percentage point reduction in
the average annual inflation rate due to lower import costs.
The Development and Budget Coordinating
Committee said that for every P1 appreciation, P2.2 billion is saved
on foreign interest payments.
The central bank, however, said it is mindful of
the potential impact of a strong peso on various sectors. Exporters
have been losing billions of pesos as they become less competitive
in the global marketplace. A strong local currency also adversely
affects beneficiaries of overseas Filipino worker remittances since
they receive a smaller amount of pesos when they convert their
dollar receipts.
The appreciation of the peso also affects the
revenues of dollar-earning business process outsourcing firms
because more dollars are needed to pay for their peso expenditures
like salaries and wages.
The local currency averaged 40.65 against the
dollar in February year on year, and has been one of the strongest
Asian currencies since last year.
At the Philippine Dealing System, the peso on
Tuesday ended at 40.67 against the greenback, stronger than
Monday’s 40.75 finish. Trading volume reached $484.6 million, down
from the previous session’s $615.12 million.
“The peso is taking its cue from the equity
[market] performance and not from the general weak dollar trend,”
Metropolitan Bank and Trust Co. said in a note. The local currency
is seen to range between 40.30 and 40.90 this week.
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