MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has vowed to contain excessive volatilities in the foreign exchange market in order to “smoothen” the movement of the peso against the dollar.

BSP Governor Amando M. Tetangco Jr. said it is necessary to contain such volatilities to help business and consumers plan more effectively.

This, he said, “is more helpful to businesses, consumers and other economic agents as this gives them the opportunity to plan more effectively and time to make adjustments, as may be appropriate.”

Tetangco pointed out that the BSP’s foreign exchange policy remains the same whether the peso is appreciating or depreciating against the dollar.

“We follow a market-determined exchange rate with scope for official action to contain excessive volatilities in the rate’s movements or when the currency either appreciates or depreciates too fast,” he said.

The peso climbed to its strongest level in 13 months after closing at P46.33 to the dollar last Oct. 15. This was its strongest level since closing P46.28 to $1 on Sept. 22, 2008.

The BSP chief said the market-determined exchange rate has been found to be rational and fair.

“It is unwise to go against fundamentals. In addition, it is important to remember that the speed and direction of exchange rate movements affect different sectors differently,” Tetangco explained.

Unaudited data show that foreign exchange trading gains amounting to P285 million helped the BSP turn its balance sheet around booking a net income of P2.9 billion from January to March this year – a complete reversal of the P24.8-billion loss registered in the same period last year.

The BSP reported an unaudited income of P8.93 billion in 2008 from a loss of P86.94 billion in 2007 due mainly to a huge turnaround in the proceeds of its foreign exchange trading operations. It booked foreign exchange trading gains of P530 million last year from a record loss of P113.7 billion in 2007.

According to Tetangco, the BSP’s reserve management is dictated by a conservative benchmark approved by the Monetary Board that is consistent with the country’s foreign exchange demands.

As part of the central bank’s tool to mitigate the impact of foreign exchange rate movements, Tetangco said the BSP has continued to diversify its currency holdings.

“Diversification in terms of currency holdings is part of our tool kit in reserve mgt and we utilize this as appropriate. In addition, we have also built up reserves in our surplus account that we could draw upon specifically during these times,” he added.

The central bank expects the country’s gross international reserves (GIR) to range between $42 billion and $43 billion instead of $37.5 billion and $38.5 billion this year. The GIR which is the sum of all foreign exchange flowing into the country went up by $800 million to reach a new record high of $42.3 billion in September from $41.5 billion in August as a result of government foreign borrowing and the increase in the price of gold.

On the other hand, the balance of payments (BOP) position which is the remaining balance net of all external payments for debt servicing and imports would post a surplus of between $4 billion and $5 billion instead of $700 million after the country booked a BOP surplus of $2.21 billion in the first half of the year from $1.93 billion in the same period last year.