BSP buying more dollars to temper peso rise
MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) vowed yesterday to continue buying more dollars to temper the peso’s strength even as its top central banker admitted the country’s foreign reserves are "enough."
As the peso reached a new 58-month peak of 40.77 to a dollar yesterday, BSP Governor Amando Tetangco Jr. said the central bank – which has generally kept a market-determined exchange rate – “reserves the right to participate in the foreign exchange market.”
This is to “ensure exchange rate movements are not destabilizing” to businesses and the economy, in general, Tetangco said during the Rotary Club of Manila membership meeting.
The local unit’s closing yesterday was the strongest since March 6, 2008 when it ended trading at 40.56 versus the dollar. Total transactions amounted to $983.70 million, up from Wednesday’s $931.80 million.
A strong peso trims the value of dollar export and business process outsourcing earnings, two of the country’s top industries. It also slashes the amount of remittances families of overseas Filipinos receive, affecting their capacity to spend, save and invest.
“This is still on the back of optimism due to the resolution of the US fiscal cliff. It is a risk-on,” a trader at a local bank said in a phone interview. Risk-on pertains to investor sentiment of acquiring risky assets in other territories on top of those from the US.
US President Barack Obama yesterday signed into a law a bill that would pull off the world’s superpower from the fiscal cliff, a combination of spending cuts and tax increases said to be enough to put the US back into recession.
Tetangco, in the event yesterday, said this has resulted into volatility in the financial markets, especially since the deal reached will only hold off spending cuts for two months. He said the market will be looking at a “permanent solution” to the budget problem.
That volatility was characterized more by more capital inflows flooding emerging markets such as the Philippines, resulting into a bull run of the Philippine Stock Exchange index (PSEi) and the peso. The main PSE index closed to a fresh record-high of 5,934.50 yesterday.
“There have been surges in capital flows, manifesting volatility… The market must be aware that flows which come quickly into the economy can come out quickly. This is more known sudden stop or sudden reversal,” Tetangco explained.