Bangko Sentral ng Pilipinas Governor Nestor Espenilla called for calm on Sunday after the peso fell to an almost 11-year low against the dollar last week, saying the currency isn’t expected to free fall given the nation’s strong economic fundamentals.
“The peso is market-determined. It’s natural for it to show volatility as it adjusts to market conditions and all the short-term uncertainties such as increased tension in North Korea,” Espenilla said in a phone message to reporters. “We don’t expect it to do a free fall because our economic fundamentals now, unlike before, are solid and very strong.”
The peso has lost 2.5 percent this year, making it the worst performer among 12 Asian currencies tracked by Bloomberg. It weakened to 50.98 to the greenback on Friday, the lowest since August 29, 2006. The currency has been dropping as the nation heads to its first current account deficit in 15 years. Geopolitical concerns have also spurred a flight to assets of advanced economies.
Still, the nation enjoys strong domestic demand and is one of the fastest-growing economies in the world.
“The peso is capable of correcting itself as the market calms down and digests the relevant information,” Espenilla said. He added that the central bank can act “strategically” if there’s excess volatility, noting a “huge pile of fx reserves.”
Espenilla, who took over as central bank chief last month, also said that the the Philippines, as an emerging market economy seeking to grow, is bound to run moderate current account deficits as it catches up on investments, particularly on infrastructure.
“Lets calm down. We’re on the right track,” Espenilla said, rejecting what he termed as “fear-based hand wringing in some of the coverage.”
Bangko Sentral, meanwhile, may still raise interest rates before the close of the year as shown by its latest move of revising upward the inflation forecasts from 2017 to 2019, DBS Bank of Singapore said in a report over the weekend.
“There was no strong indication of what the BSP may do next, but the central bank provided several important hints. Inflation forecast has been revised up slightly to 3.2 percent for 2017 and 2018 (from 3.1 percent and 3.0 percent previously),” the bank said.
The inflation forecast for 2019 was also adjusted upward to 3.1 percent from 3 percent, slightly higher than the midpoint of the target range of 2 to 4 percent.
“That the upward revision to inflation came despite the recent moderation in the headline CPI numbers, suggests the BSP is still watchful of inflationary risks going forward,” it said.
DBS also said Bangko Sentral might want to take more cues from the second-quarter gross domestic product growth before deciding on the next course of action. The government is set to release the second-quarter GDP data within this week.
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