Peso weakening in line with reg’l currencies

MANILA, Philippines - The peso’s movements against the dollar recently are in line with other currencies in the region as positive US data buoys the greenback, the Bangko Sentral ng Pilipinas said, stressing it stands ready to intervene in case of excessive volatilities.

“The currencies in Asia including the peso are being affected by the developments in the advanced economies particularly in the US,” Tetangco said during the Philippine Economic Briefing yesterday.

“The data coming out of the US have been quite positive and the market has interpreted this sign that the US fed will probably start raising interest rates higher earlier than expected,” he continued.

The peso recovered to 44.875 to $1 on Tuesday from its 44.995 to $1 finish on Monday, which was the unit’s weakest level since it closed 45.04 to $1 on March 27.

However, the peso crossed the 45-per-dollar band trading yesterday after the greenback performed stronger following the revision of the US second quarter economic growth to 4.6 percent from an earlier estimate of 4.2 percent.

Tetangco said the exchange rate remains driven by market forces although the BSP maintains its presence to smoothen out excessive fluctuations.

“We allow market forces to essentially determine the exchange rate of the peso with scope of possible official participation… to manage the volatility in exchange rate movements,” Tetangco said.

But the weakening peso is not seen having a significant effect on inflation, which has averaged 4.4 percent as of August.

“The pass-through effect of inflation has gone down through the years because of more competition in the domestic economy so we don’t expect the movement of the peso to have a significant effect on inflation per se,” Tetangco said.

Inflation has remained at 4.9 percent in August from the previous month, and the average to date settled above the midpoint of the BSP’s three-to-five percent target range.

Tetangco said that while the inflation rate could spike in the remaining months, the average is forecast to remain within the target band.

“Definitely, we think there could be fluctuations in the inflation rate in the monthly basis but our view remains that the average for the whole year will be within (the targets for 2014 and 2015,” Tetangco said. The BSP has a narrower target band for next year at two to four percent.