THE PESO’S recent slide against the dollar puts pressure on the Bangko Sentral ng Pilipinas (BSP) to intervene to prevent inflationary risks, but its chief reiterated that they remain present in the market only to smoothen out sharp swings.
“There’s tremendous pressure to defend the peso and we’ve resisted that pressure,” BSP Governor Eli M. Remolona, Jr. told reporters on the sidelines of an event on Thursday.
On Wednesday, the peso plunged to a fresh record low of P59.355 versus the dollar. It recovered on Thursday, closing at P59.17.
The BSP chief said they make “minimal” interventions in the foreign exchange market to ensure that movements are not too sharp.
Asked what the central bank would do if the peso touches P60 or P61, Mr. Remolona said: “Wala (Nothing). It’s just a number.”
“The economics doesn’t warrant defending the peso,” he said. “I feel the pressure, but the economics of it is we shouldn’t. In the old days, I would have not defended the peso, but promoted depreciation when we still had a significant manufacturing. It affects manufactured exports. Our neighbors who are of export-led growth, they like to purposely weaken their currencies.”
Analysts said easing dollar inflows amid weak investor sentiment could put more pressure on the peso and give the BSP a reason to defend it.
“I think there could be a lot more pressure… After the remittances inflows in the seasonal period of December, the source of dollars is probably easing a little bit now, and we don’t see much inflows because I think, based on my conversation with foreign investors, inflows are also lacking because of negative sentiment on the back of the corruption scandal,” Nomura Chief ASEAN Economist Euben Paracuelles said on Money Talks with Cathy Yang on One News on Thursday.
“So, I think there’s some reason to believe that there could be more pressure, and this is why I think BSP is on guard.”
Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said the BSP’s intervention will likely remain strategic.
“It (the peso’s weakness) increases the likelihood of BSP intervention, but it would likely be measured and tactical than aggressive. The BSP typically steps in to smoothen excessive volatility, especially if peso moves risk feeding into inflation or destabilizing expectations,” he said in a Viber message.
For his part, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a Viber message that the peso’s latest decline has not been excessive enough to warrant heavy intervention.
However, he said that while a recovery to the P57-58 level remains possible, the currency could sink to the P60 level by the second semester as the country’s current account deficit will likely continue to widen, with financial and capital accounts to remain volatile due to external risks.
“The downtrend can persist while the dollar stays firm, but it is not one way. There is upside if inflation remains contained, the BSP maintains policy credibility, and remittances and investment inflows pick up, which could allow a stabilization and modest recovery later on,” Mr. Rivera added. — Katherine K. Chan and Aaron Michael C. Sy