Peso can stand shocks – BSP

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The country’s sound external liquidity position like the balance of payments  (BOP) is a useful buffer to counter external shocks that negatively affect  the movement of the peso, according  to the Bangko Sentral ng Pilipinas (BSP).

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“The weakening of the peso was not totally unexpected, just like the weakening of the other regional currencies. It’s not totally unexpected because there remains uncertainty about the speed and the duration of the Fed taper,” BSP Governor Amando Tetangco Jr. said during the Annual Reception to the Banking Community.

The United States Federal Reserve has announced that it would start to reduce its $85-billion a month quantitative easing (QE) program to $75 billion beginning this January. The Federal Open Market Committee would cut its monthly long-term Treasury on purchases to $40 billion and mortgage-backed securities to $35 billion a month, for a total $10-billion reduction in the US bond-buying program.

Tetangco explained that the Fed announcement is causing market volatility and as a result, there has been some global portfolio rebalancing that has led to weakening of the regional currencies, as well as emerging markets currency in general.

On January 15, the peso entered the P45 to a dollar territory, its weakest end since September 1, 2010, when it finished P45.08 against the dollar. The local currency further depreciated to P45.12 to a dollar on January 16 and back to P45 to a dollar on January 17.

“The macro fundamentals of the Philippines remains sound and external liquidity position remains sound. In fact, we are projecting another BOP surplus this year, and that surplus significantly is due to current account surplus,” Tetangco added.

The BOP summarizes the country’s economic transactions with the rest of the world during a period. A surplus arises when inflows are greater than outflows, while a deficit is incurred when outflows of dollars exceed the inflows.

Current account is one of the compositions of BOP that includes trade-in-goods and services, income, and current transfers.

The BSP said that the BOP will remain in surplus in 2014 at $3 billion, or 0.9 percent of gross domestic product (GDP) on the account of trade deficit that would be brought by the reconstruction requirements in connection to the damages brought by Super Typhoon Yolanda.

For 2013, the central bank has revised its projections for the BOP to $5.3 billion, or 1.9 percent of the gross domestic product from its earlier projection of $4.4B. Cumulative BOP surplus from January to November 2013 amounted to about $4.67 billion.

“It’s good because its shows a real improvement on the external position. The surplus coming out from the real sector [really counts]not just from capital flow. So that also gives us useful buffer against external shocks,” Tetangco said.

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