No Peso Speculative Play Yet – Manila Bulletin

The central bank said the peso was not under any speculative attack or selloff of the peso, which depreciated following a 17-year low of 55.09 pesos against the US dollar on Friday, the first day of July.

“We don’t think there is a speculative attack on the peso, but companies that have maturing foreign exchange bonds are buying ahead of their needs,” said Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla, at the Manila Bulletin.

Medalla also added that importers who have a surplus of pesos or who can borrow are likely to purchase the dollars they need for their imports sooner than normal.

Speculative attacks on currencies occur when there is an excessive and large volume of currency sales in the hope that the central bank will run out of reserves and a currency crisis will ensue, and speculators with a hoard of foreign currency will be able to dictate the market price.

Bank teller counting P1000 notes/Bloomberg photo

While the exchange rate is determined by the market, the BSP has the ammunition to step in and participate via other monetary measures to prevent major exchange rate volatility.

The central bank is currently implementing an Exchange Rate Protection Program (CRPP) which the BSP reactivated in 2018 when the peso depreciated due to inflation concerns. The CRPP facility is a non-deliverable forward contract in US dollars between the BSP and major banks to “help relieve the pressure on the foreign exchange market created by corporate clients who wish to anticipate their future currency needs”.

The country’s exchange rate policy supports a freely floating exchange rate system where the BSP lets market forces dictate the level of the exchange rate. The BSP will only enter the spot market to provide “order and temper destabilizing swings” in the peso-US dollar exchange rate.

With adequate reserves of $104 billion, the BSP is quite confident in its ability to maintain the stability and convertibility of the peso against all other currencies.

If necessary, the BSP will release liquidity in dollars and ensure that there are legitimate requests for foreign currencies and that they are met. As such, “smoothing exchange rate volatility is critical to delivering on our core mandate of price stability, as exchange rate fluctuations tend to directly affect domestic prices of imported goods and services. , and indirectly, through the prices of goods and services that use imported inputs,” the BSP said.

The BSP has never tolerated speculative behavior and stands ready to use its reserves to protect the local currency against a sell-off by traders eager to profit from a depreciating peso.

The BSP’s mantra is that the peso will “take care of itself”.

Medalla told reporters last Wednesday that they are only interested in the peso rate if it is already affecting inflation. He said that “if the exchange rate moves too much, it will clearly affect inflation. But I won’t say which is too much. Inflation is currently above target and is expected to increase to 5.7% to 6.5% in June from 5.4% in May.

Although the BSP does not monitor any speculative play on the peso, the new head of the BSP said he was aware of the problem and its impact on the exchange rate, which is the sharp revision of the current account deficit due to the greater import needs for an economic recovery like the Philippines.

PASB expects a larger balance of payments (BOP) deficit of $6.3 billion for this year compared to its previous estimate of $4.3 billion amid continued external challenges. accumulate. PASB revised its balance of payments deficit projection based on an expected higher current account deficit of $19.1 billion this year, up from its previous projection of $16.3 billion. dollars.

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