BSP Warns Against Peso Speculation

The Bangko Sentral ng Pilipinas (BSP) on Tuesday warned currency speculators not to take “undue advantage” of the Philippine peso, which slumped to a fresh low against the US dollar on Monday. The Philippine peso closed at P58.65 per dollar on Tuesday, gaining 35 centavos from a record-low P59 a day earlier.

Photo Insert: The BSP said financial markets around the world have been disrupted by the strong US dollar, which has caused other currencies like the peso to depreciate.

“We ask those who have the means not to take undue advantage of changing market conditions. This does not help the Philippine peso; it does not help the Philippines,” the BSP said in a statement. “What we can do is to bring all transactions into an organized and accessible formal market that offers consumer protection,” it added.

The BSP said financial markets around the world have been disrupted by the strong US dollar, which has caused other currencies like the peso to depreciate. Year-to-date, the peso has so far weakened by P7.65 or 15% from its P51 close on Dec. 31, 2021.

“The BSP is taking steps to manage any disruption in our financial market. We look forward to servicing all legitimate dollar transactions. The USD spot market remains open and active while forwards and repos are available facilities,” the central bank said.

Nicholas Antonio T. Mapa, senior economist at ING Bank in Manila, said the BSP’s statement shows it is “recognizing the importance of legitimate transactions for commerce as this will spur economic growth.”

“What they are hoping to minimize and mitigate are speculative moves which tends to drive undue pressure and panic on the spot market,” Mapa said. The peso opened Tuesday’s session at P58.88 versus the dollar. Its weakest showing was at P58.98. The peso recorded its intraday best at P58.64 against the greenback after BSP’s statement was released.

Dollars exchanged inched up to $779 million on Tuesday from $666 million on Monday.

“The peso appreciated amid expectations of a stronger Philippine inflation report for September 2022,” a trader said in an e-mail, noting that “The local currency is expected to move in line with the BSP’s the inflation rate data set for release. soon.

”If realized, September inflation would be quicker than the 6.3% seen in August and the 4.2% last year. It would also mark the highest print in 45 months or since the 6.9% print in October 2018.

“While the consensus remains below 7%, should the official inflation report for September breach the 7% mark it could bolster expectations of more aggressive rate hikes from the BSP,” the trader said. For Wednesday, the trader gave a forecast range of P58.55-to-P58.75.

Unavoidable

Meanwhile, Cielito F. Habito, former Socioeconomic Planning secretary, said the further depreciation of the peso will depend on the US Federal Reserve’s next move. “Given impending further increases in US interest rates, unless we try to match each of those interest rate hikes point by point, then we cannot avoid further depreciation of the peso,” he said on One News Channel.

Habito said the BSP is closely watching if the peso depreciation is exceeding the inflation rate.

"When that happens then clearly, the exchange rate itself is actually feeding into inflation and of course, the BSP is primarily focused on inflation and if the exchange rate depreciation becomes a factor for inflation, they will in fact have to act,” he said.

Since the economy continues to grow, Habito said this will give the BSP confidence to raise rates “a little bit… if only to arrest again the inflationary impact of peso depreciation.”

In a research note dated Sept. 27, Nomura Holdings, Inc. said the Philippine central bank should start looking for alternative ways to support the peso.

“Rollback the amount of FX that firms and individuals can buy, scrutinize local demand for FX deposits,” Nomura said, adding that the Philippines can reduce trade deficits by seeking Russia’s commodities such as oil and agriculture.

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