Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said Tuesday the peso will remain stable in the medium term, on the back of sound and solid macroeconomic fundamentals.
Espenilla said the local currency’s “controlled” movement was in line with the country’s robust economy.
“The peso movement mirrors the bullish economy… The peso will remain stable in the medium term… We have also additional liquidity buffers, such as the arrangements [on swap facilities] with Japan and Asean,” Espenilla said during a Security Bank Corp.-sponsored economic forum in Makati City.
The peso on Oct. 25 fell to an 11-year low of 51.77 against the US dollar, pulled down by the country’s widening trade deficit and speculations on who the next Federal Reserve chairman would be.
It was the local currency’s weakest level in more than 11 years, or since it settled at 51.87 a dollar on July 25, 2006. The peso has since then recovered and closed at 50.74 against the greenback Tuesday.
Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo earlier said there was a fundamental demand for US dollar for imports, outward investments and debt servicing.
Guinigundo said markets and investors should not be overly concerned about the peso movement because the peso was “flexible enough” to reflect the necessary adjustments in the macroeconomy to restore equilibrium.
“This is not the first time that we are hitting these lows in the peso dollar rate. With exports continuing to rebound and with support from strong remittances and BPO receipts, we should see some mitigation in both the current account and the exchange rate,” he said.
“We have seen how the peso had appreciated to nearly 40 a dollar to as low as P55 to a dollar but the economy remained strong, stable and resilient. There is much more than an exchange rate gyration,” Guinigundo said.
Guinigundo said the strength of the greenback was the effect of higher corporate demand for imports and trade financing.
Finance Secretary Carlos Dominguez III said the weakening of the peso against the greenback was expected due to the rising importation of capital goods amid the fast-growing economy.
Latest data from the National Economic and Development Authority showed that the trade-in-goods deficit in August widened to $2.41 billion from $2.13 billion a year ago as imports outpaced exports.
Total exports increased 9.3 percent to $5.51 billion in August from $5.04 billion a year ago, while imports jumped 10.5 percent to $7.92 billion from $7.17 billion.
The Cabinet-level Development Budget Coordination Committee recently kept the peso-dollar exchange rate this year at 48 to 50 a dollar, while admitting that global economic and political developments were affecting the trend in emerging market currencies, including the peso.
DBCC’s forecast for the years 2018 to 2022 was adjusted to 48 to 51 per dollar, with the resumption of the US Federal Reserve’s monetary policy tightening that could put more pressure on the peso.
The peso hit an all-time low of 56.45 a dollar in August 2004.
Espenilla also downplayed the concerns of some sectors on the possibility of economic overheating, saying the country’s credit-to-GDP ratio remained one of the lowest in the region.
Espenilla assured everyone that the regulator remained on its toes and was ready to deploy measures “if needed.”
“The possibility of economic overheating was raised by some analysts…. but we are always vigilant to avoid it. The credit-to-GDP ratio remains one of the lowest in the region,” Espenilla said.
The overheating of an economy occurs when its productive capacity is unable to keep pace with growing aggregate demand. It is generally characterized by an above-trend rate of economic growth.
Latest data showed that credit growth as of September 2017 settled at 21 percent and International Monetary Fund resident representative to the Philippines Yongzheng Yang said last week “it would further go up” that could potentially result in overheating.
Yang said if there was indeed an overheating, monetary authorities might consider tightening the monetary policy “by raising interest rates.”
“And if the overheating is also reflected in very high credit growth, credit boom”•meaning credit growth is excessive”•you could also take various macroprudential policy. That is, for example, to raise the capital requirement for banks so they won’t lend out that much….,” Yang said.
The economy grew by 6.9 percent in the third quarter, bringing the year-to-date average to 6.7 percent, within the government’s target range of 6.5 percent to 7.5 percent this year.