The peso on Friday flirted near the 54-per-dollar level but gained some strength at the close after the Bangko Sentral ng Pilipinas expressed its readiness to take strong “immediate actions” to address excessive exchange rate volatility and temper accelerating inflation.
The peso gained seven centavos to close at 53.73 from 53.80 on Thursday. It opened five centavos weaker at 53.85 and touched 53.975 at one point of the trading day before settling at 53.73 to the greenback. Total volume stood at $956.9 million, up from $911 million.
The 53.80 at the close on Thursday was nearly a 13-year low against the greenback since it hit 53.985 at the close on Dec. 7, 2005.
ING Bank Manila senior economist Joey Cuyegkeng said the peso drew support from the statement of BSP Governor Nestor Espenilla Jr. that the regulator would take strong immediate action using the full range of instruments in its toolkit to respond to emerging threats to inflation and inflation expectations.
Espenilla said the actions would also address other threats to higher inflation such as excessive exchange rate volatility not consistent with the underlying macroeconomic fundamentals to ensure that inflation returns to its 2 to 4 percent target range.
Espenilla also said the Monetary Board might hold an emergency meeting ahead of its scheduled meeting on Sept. 27.
“The BSP is taking strong action now including the possibility of action similar to the Aug. 9 policy rate hike [of 50 basis points]. The recent actions and statements today by the BSP governor delivers strong support for the peso,” Cuyegkeng said.
Cuyegkeng said he expects the peso to exhibit strength in the fourth quarter on the back of the BSP’s expected actions and hawkish stance, strong capital inflows similar to the fourth quarter last year, and moderation of emerging market risks in the latter part of the year.
Espenilla also announced the reactivation of the Currency Risk Protection Program. First introduced in December 1997, the CRPP was a non-deliverable forward hedging facility which was aimed at alleviating demand pressures in the foreign exchange spot market from borrowers seeking to hedge their future foreign exchange exposures.
Under the facility, parties agree that, on maturity of the forward contract, only the net difference between the contracted forward rate and the spot rate shall be settled in pesos. The BSP will make the CRPP available to eligible borrowers through the commercial banks.
Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo remained optimistic of the current level of the peso, saying it could withstand the impact of the surging dollar.
He also cited other reasons for the peso’s weakness, such as the government’s settlement of its foreign debts and firms’ prepayments of their foreign obligations.
“I think we have enough buffers that can support the peso against the US dollar,” Guinigundo said.
The August inflation rate was the fastest in more than nine years and surpassed estimates both from the government and private sector economists. It was also a lot faster than the 2.6 percent recorded a year ago.
This brought inflation in the first eight months to 4.73 percent, well above the government’s official target range of 2 percent to 4 percent for the year.
The peso closed 2017 at 49.93, weaker than the 49.72 at the end of 2016. It opened 2018 stronger at 49.81 on Jan. 3.
The peso’s all-time low was at 56.45 in August 2004.
Meanwhile, Moody’s Investors Service said Friday that the 6.8-percent growth target it earlier predicted for the Philippines this year might not be met because of the accelerating inflation.
In a report, Moody’s said faster inflation was a “prominent challenge” to the economy.
“We do expect higher inflation will remain for a couple more months,” Moody’s vice president and senior credit officer Christian de Guzman said, adding that monetary policy has been “especially proactive” and “somewhat effective” in helping the Bangko Sentral meet its targets.
Inflation rose to a nine-year high of 6.4 percent in August from 5.7 percent a month ago and 2.6 percent a year ago, driven mainly by higher prices of rice, meat, fish, vegetables and other food products.
The economy in the first half averaged just 6.3 percent, following the lower-than-expected 6 percent in the second quarter, slower than the 6.6 percent in the first quarter. The government earlier projected a 7 percent to 8 percent growth in the gross domestic product this year.
But Finance Secretary Carlos Dominguez III, head of the Economic Development Cluster of the Duterte Cabinet, said that inflation would moderate in the coming months once the immediate measures aimed to curb higher consumer prices were in place.
De Guzman added that with the way things are going, it would be “mathematically impossible” for the Philippines to meet its 6.8-percent growth target for the year, after the dismal second quarter performance.
De Guzman said Moody’s would be closely monitoring how the current political turmoil would affect the government’s ability to pursue more reforms.
The Philippines enjoys investment grade rating with Moody’s, the same with Fitch Ratings and S&P Global Ratings.
Data from the Philippine Statistics Authority showed that Metro Manila posted the sharpest rise in retail prices of food and non-alcoholic beverages in August this year, compared with other areas in the country.
The average food and beverage prices in the National Capital Region rose 8.6 percent last August from year-ago figures.
This was a bit higher than the 8.4 percent rise in the average food and non-alcoholic beverage retail prices in areas outside NCR, the PSA noted.
Senator Risa Hontiveros on Friday accused the President of using attacks on the opposition to divert public attention from the unmitigated rise in inflation and his government’s incompetence to deal with the problem.
“President Duterte’s persecution of [the political opposition] is a desperate attempt to divert public attention away from the negative effects of untamed inflation,” she said.
“Sorry, Mr. President, but it’s not working,” she said.
Sound economic policies, not an assault on democracy, would address inflation, she added. With Macon Ramos-Araneta and PNA