BSP vows action vs forex disruptions

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has vowed to guard against disruptive and excessive movements in the foreign exchange market as the peso continued to fall to its weakest level against the dollar in more than a decade.

BSP Governor Amando Tetangco Jr. said the demand to service legitimate dollar requirement is moving the foreign exchange market.

“Our surveillance shows there is market demand to service legitimate dollar requirement and that’s moving the market. There is also market positioning as some participants have a view on the dollar,” Tetangco said.

Tetangco explained the BSP adheres to a market-oriented foreign exchange rate policy and its role is principally to ensure orderly conditions in the market.

“These are normally part of a healthy vibrant market. But this is not to say that we will stand back when we see that the movements are disruptive or excessive,” Tetangco said.

The peso shed another two centavos to close at 50.25 from Monday’s close of 50.23 to $1. This was the weakest level since it closed at 50.32 to $1 on Sept. 26, 2006.

The local currency opened weaker at 50.3 to $1 before hitting an intraday low of 50.355 to $1. It momentarily breached the 50 to $1 barrier after hitting an intraday high of 49.28 to $1. Volume amounted to $581.5 million from Monday’s $723 million.

Under an independent float, BSP Deputy Governor Diwa Guinigundo said the peso would reflect market volatilities but at the end of the day would be supported by the country’s robust macrofundamentals.

“The BSP will keep its eye on the ball and its feet on the ground,” Guinigundo said.

He added the fallout from the US Fed interest rate hike and the populist sentiment in Europe could dent market sentiment and with it bring down regional currencies including the peso.

Guian Angelo Dumalagan, market economist at Land Bank of the Philippines, said the peso continues to weaken due to political uncertainties in Europe and optimism ahead of the tax plan of the Trump administration.

“The peso depreciated significantly as political uncertainties in Europe and optimism ahead of President Trump’s tax plan improved the dollar’s appeal as a safe haven,” Dumalagan said.

As expected, Dumalagan said the peso moved within the 50 to 50.3 to $1 range but could appreciate ahead of the release of the minutes of the Federal Open Market Committee (FOMC).

“The peso might appreciate, as investors might take profit after the dollar’s recent surge and ahead of the release of the FOMC minutes,” Dumalagan said.

The peso, together with other currencies in the region, ended weaker due to the strong hawkish statements from US Federal Reserve chair Janet Yellen.

US officials are bullish about the economic prospects amid rising inflation, strong retail sales, and robust factory activity.

For his part, ING Bank chief economist Joey Cuyegkeng said the banks is currently reviewing its foreign exchange forecasts for the first and second quarters amid the continued underperformance of the peso.