‘Peso volatility tied to domestic issues’

MANILA, Philippines — The recent volatility in the peso and local financial markets may be partly driven by domestic developments that have weighed on investor sentiment, a senior Bangko Sentral ng Pilipinas (BSP) official said yesterday.

BSP Deputy Governor Zeno Abenoja said movements in the peso, equities and other financial markets have reflected both global and local factors, with the latter taking a more prominent role in recent weeks.

“This year, the story has been about a weak dollar and a lot of currencies have been appreciating against the dollar, and that is true for the peso. But for the past few weeks there has been a separation (of the peso) from that trend,”Abenoja  said in a media forum.

“That could be an indication of some domestic developments that are being reflected in the volatility,”
he noted.

The peso had tracked most Asian currencies’ appreciation earlier this year as the dollar weakened. However, it recently reversed course, weakening even as regional peers gained ground.

The peso closed at 58.625 against the greenback on Friday, inching up from its 58.61 finish on Thursday. It marked the weakest close in eight months or since the 58.66-to-a-dollar close on Feb. 3. 

Abenoja said the recent depreciation and heightened market noise appeared linked to concerns over “leakages” in some national government infrastructure projects.

He said the BSP has engaged with investors and credit rating agencies in recent weeks, and noted that the government’s swift and transparent response has helped calm the market.

“The response was immediate. There was this committee that was formed. There’s a lot of transparency elements to it. Accountability is being emphasized. And these are taken to be good elements of that response,” Abenoja said.

According to Abenoja, authorities are working to strengthen the budget process, from project formulation to implementation and evaluation, to prevent similar issues.

“What is important is we have some transparency in the system,” he said. “We are committed to have a better understanding of what has happened and make those that violated the law accountable. More importantly, all these experiences will translate to improvement in budget execution moving forward.”

Abenoja said these reforms would enhance fiscal efficiency and have a stronger impact on economic activity over the medium to long term.

Asked whether the BSP has intervened in the foreign exchange market to temper the peso’s volatility, Abenoja declined to confirm, saying, “I don’t know. But frankly, I don’t think so. They don’t need to. The BSP is more discerning now with exchange rate movements.”

He added that while some volatility may persist, the central bank expects the fluctuations to remain manageable.

“There could be some noise, but what we have observed in the past two weeks is that it could be limited or manageable,” Abenoja said.

He did not provide a forecast for the peso, which has been hovering near the 59 level against the dollar in recent weeks.

Despite the recent fluctuations, Abenoja said the peso remains fundamentally supported by a benign inflation outlook, ample reserves and a sound banking system.