MANILA, Philippines–Expect the peso to continue depreciating in the near term as the dollar rallies against all currencies due to the recovery in the American economy, posing a threat to the Philippines’ own performance this year.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. assured, however, that spikes in the local currency’s value would be kept in check as monetary authorities maintain their presence in the foreign exchange market to promote stability.
“I think the BSP is aware of the risks from a depreciating peso,” BDO chief market strategist Jonathan Ravelas said in an interview.
This follows comments by Tetangco on Thursday, saying the peso was expected to weaken further in the near term.
Ravelas said support for the dollar to strengthen was coming from two sides. The first was the US Federal Reserve’s expected hike in its policy rates later this year. The second being plans by major economies such as Europe and Japan to infuse their domestic markets with fresh cash via quantitative easing. This will weaken their respective currencies against the dollar, which could drag down the value of the peso as well.
On Thursday, the peso closed at 45.065-to-$1 after hitting an intraday low of 45.10: $1. The currency ended 2014 at 44.72: $1.
A weaker peso makes imported goods such as fuel and food more expensive for consumers. Foreign loans also become harder to repay especially for companies that book peso revenues.
However, a weaker currency boosts consumer spending as it puts more cash in the hands of people and firms that earn in dollars, among them exporters, business process outsourcing companies, and families of overseas Filipino workers (OFW).
The central bank chief said the BSP would “maintain its presence” in foreign exchange markets to minimize spikes in the peso’s value, while still allowing the currency to move according to market forces.
“We at the BSP will continue to be watchful and ready to deploy appropriate policy actions in a timely manner to minimize impact of volatile capital flow movements,” he said.
BDO’s Ravelas said for now, thanks to cheap fuel, the BSP had enough policy space to keep interest rates near their record lows. Last year, the BSP raised the overnight borrowing and lending rates by half a percentage point each to 4 and 6 percent, respectively.
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