Market forces to dictate forex rates – BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas said the peso will continue to be determined by market forces although it may lend a hand in smoothing out excessive volatility.

“The BSP will also continue to adhere to a market-determined exchange rate policy, with some scope for occasional BSP participation to moderate excessive volatility in the exchange rate,” the central bank said in its Report on Economic and Financial Developments.

“This implies that the BSP will not set out to reverse the underlying trend of the peso, but only to smooth out volatility in the exchange rates.”

The peso finished at 44.65 to a dollar last Friday, its weakest level since Aug. 29, 2013 when it closed at 44.75 against the greenback.

The local currency ended 2013 at 44.395:$1, 7.35 percent weaker than its 41.05-per-dollar finish in end-2012.

The peso’s volatility, a measure of the magnitude of its fluctuations during a certain period, settled at 3.24 percent for 2013.

BSP Gov. Amando M. Tetangco Jr. earlier said the peso’s depreciating streak last year was in line with other Asian currencies such as the Singaporean dollar, the Thai baht, Malaysian ringgit, Indonesian rupee, and Indian rupee.

The Korean won and the Chinese yuan were the only ones that bucked the weakening trend among Asian currencies.

The peso’s movements last year were largely hinged on the investors’ anticipation of the US Federal Reserve’s tapering of stimulus.

Volatility hit markets in May last year, when the Fed hinted it may start scaling back its stimulus on the back of an improving US economy.

The wait for the actual taper caused sell-offs in global financial markets as investors repatriated their funds from emerging economies including the Philippines.

The Fed last Dec. 18 finally announced it will bring to implement a modest $10-billion cut in its monthly asset purchases to $75 billion starting this month.

Despite the Fed announcement, Tetangco last year said volatility is still expected to remain present in markets in the short term as investors, central banks, and federal government rebalance their portfolios to accommodate the tapering.

Moreover, he stressed that the pace and timing of further cuts in the Fed’s massive bond purchases will create uncertainties in global financial markets.