BSP ready to act against excessive forex volatility

MANILA, Philippines - The peso will continue to be driven by market forces although the Bangko Sentral ng Pilipinas said yesterday it remains ready to act in case excessive volatility arises following renewed geopolitical risks after the US Senate approved President Obama’s plan to train and arm moderate Syrian rebels to battle Islamic State militants.

“On the exchange rate, our policy remains the same — allow the foreign exchange rate to be fundamentally determined but we will not hesitate to be present in the market if the rate movements become excessively volatile/fast in one direction,” BSP Governor Amando M. Tetangco Jr. said.

“We will continue to monitor developments in Syria/US policy and their impact on commodity prices to see how these translate into our domestic inflation dynamics, and assess if there is any need to make adjustments to policy,” he said.

The US Senate last week backed President Obama’s plan to arm Syrian rebels to fight Islamic State militants. The measure now only needs Obama’s signature to be made into law.

Analysts have said that this now may create heightened volatility in international oil markets and financial markets, as well.

“Heightened geopolitical risks often result in flight to quality in financial markets — often, towards advanced economies and therefore possible depreciation pressures on the currencies in EMEs (emerging markets and economies),” Tetangco said.

“These could also result, if related to major sources of oil/commodities, to volatility in the international prices of these commodities,” he said.

The peso on Thursday weakened to 44.42 to a dollar from its 44.26:$1 finish on Wednesday following the US Federal Reserve’s announcement to cut its stimulus anew and keep its rates unchanged. There was no trading last Friday after Tropical Storm Mario shut down the Metro with torrential rains that flooded part of the capital.

So far, the peso has averaged 44.28 per dollar in the eight months to August, already near the lower-end of the government’s 42:$1 to 45:$1 assumption. 

Tetangco said the country’s macroeconomic fundamentals remain sound and that the Philippines, through the years, has built buffers against external shocks.

“All these said, we reiterate that the country’s fundamentals remain sound and we have built buffers such as strong external liquidity position, sound banking sector, fiscal and monetary space, which should allow us to remain resilient in the face of these external risks,” Tetangco said.