BSP keeps calm, allows orderly peso movement

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) yesterday vowed to exercise self-restraint as the peso is not likely to stand still under a floating exchange rate regime.

BSP Governor Nestor Espenilla Jr. said authorities would continue to craft and implement rational as well as transparent rules to promote order in the foreign exchange market.

“The BSP has to practice self-restraint to allow the market to process all the information, allow it to operate efficiently, and determine market-clearing price,” he said.

The central bank adheres to a market-oriented foreign exchange rate policy as it ensures orderly conditions in the market by intervening through buying or selling in the foreign exchange market to smoothen excess volatility.

Espenilla said the BSP produces and publishes high quality and trusted information as well as objective analyses that enable and promote rational decision-making by all players in the foreign exchange market.

He said an orderly market could sway the decisions of market players trying to figure out the right price of the dollar in peso terms as they buy and sell dollars as a consequence of their own transactions with customers.

“There is natural volatility in this price discovery process because of timing and other uncertainties. Don’t expect the peso to stand still. We are on a floating exchange rate regime. This makes sense for a relatively small open economy,” he added.

The BSP chief said those who want more certainty to insulate a transaction from exchange rate volatility should invest in a hedge.

Espenilla said the BSP has the resources and regulatory powers to run after speculators in the foreign exchange market.

“The BSP stands ready to intervene and neutralize the activity of speculators so they don’t define the market. They can’t be allowed to distort price discovery in search of quick profits by promoting exaggerated price movements and instability,” he said.

He also reiterated the BSP has both the capacity and resolve to act against speculative plays in the foreign exchange market.

“We have resources and regulatory powers to back the talk. The BSP has both capacity and resolve to act,” Espenilla said.

The peso is the worst performing currency in the region shedding 2.8 percent since the start of the year.

“The modest and gradual depreciation of the peso in recent months, 2.8 percent year-to-date, is a reflection of this dynamic price discovery process on the back \of strong and sustained imports growth as the economy hums along,” he said.