MANILA, Philippines – The peso’s continued weakness against the dollar is not expected to last for long as this has been driven by market reactions to recent developments, a Bangko Sentral ng Pilipinas (BSP) official said.
“I’m not sure if that is going to be for the long haul because as I have always indicated… we have a balance of payments and current accounts surpluses that should drive the firmness of the peso moving forward,” BSP Deputy Governor Diwa C. Guinigundo told reporters late last week.
The local currency closed at 44.26 to a dollar last Friday, its lowest level since Jan. 31, 2011.
Analysts attributed the depreciation to last week’s US Federal Reserve minutes which signified support for tapering stimulus due to an improving US economy. Moreover, the peso tracked other regional currencies, which weakened because of disappointing economic indicators reported by some emerging markets.
“What we’re seeing is market reaction… so this is something that is driven more by market sentiment than by fundamental factors,” Guinigundo said.
“It’s bound to correct in due time and when that happens… it means that that should go back to fundamentals and the fundamentals means that peso should be firm because of the balance of payments and current accounts position,” he continued.
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The country’s balance of payments surplus amounted to $3.677 billion in the seven months to July. The BoP, which shows a country’s transactions with the rest of the world, tallies investments, remittances from overseas Filipinos, and exports and imports, among others.
Guinigundo noted the central bank has space for monetary policy amid the manageable inflation rate.
“Should additional accommodation is necessary, we have sufficient flexibility. Flexibility in a sense that you have a January to July inflation average of 2.9 percent while the target is 3 to 5 percent,” Guinigundo said.
“But of course, in the middle of these volatilities, the market uncertainties, you don’t do that. The most that one can do is to keep the rates steady at this point when everything seems to be uncertain,” he continued.
The central bank has kept overnight borrowing and lending rates at 3.5 percent and 5.5 percent, respectively, since the start of the year amid stable inflation expectations and a robust economy.