BSP chief cites peso’s resiliency

FILE PHOTO/ The BSP complex in Manila (Photo by Ramon FVelasquez – Own work, CC BY-SA 3.0)

MANILA —The Philippine peso is again testing its 11-year low to a US dollar but continues to remain firm given the country’s strong macroeconomic fundamentals, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla said.

On Wednesday, the local  currency finished the day at 51.35, almost unchanged against its previous day’s 51.34 finish but almost hit  51.38, its weakest since Aug. 25, 2006.

Espenilla, during the Senate hearing on the proposed 2018 national budget on Wednesday, said “the recent depreciation of the peso partly reflected market concerns on the turn to deficit of the country’s current account balance despite the fact that macroeconomic fundamentals remain sound.”

As of end-March this year, the country’s current account registered a deficit of USD318 million, equivalent to 0.4 percent of gross domestic product (GDP).

Espenilla, however, said that “in the foreign exchange market, firm macroeconomic fundamentals will continue to provide stability to the peso despite the recent spate of depreciation pressures.”

As of the first quarter of 2017, the domestic economy continues to post above six percent growth, as measured by gross domestic product (GPD), with the exact level at 6.4 percent.

This growth was lower than year-ago’s 6.9 percent and quarter-ago’s 6.6 percent but was in line with the 6.2 percent average growth in the last six years.

Espenilla pointed out that in terms of real effective exchange rate,  the local currency has “gained external price competitiveness against its trading partners due to the combined effects of the peso’s nominal depreciation and lower consumer prices against these currency baskets.”

“The peso is also expected to be broadly stable for the medium- to long-term,” he said.

Economic managers’ 2017 peso-dollar assumption is a range between 48 and 50 while it is 48-51 for 2018-22, with the projected weaker range for next year until 2022  due to the impact of the on-going normalization of US interest rates.

The BSP chief said monetary officials remained optimistic on the local currency given the projected strong inflows of remittances from Overseas Filipino Workers (OFWs), among others.

Cash remittances from OFWs grew by 4.7 percent year-on-year to USD13.81 billion in the first half of 2017 while total remittances, or including the value of in-kind remittances, went up 5.5 percent year-on-year during the same period to USD15.36 billion.

Both growth levels are higher than the four percent full year assumption of the central bank for 2017.

“We project continued strong inflow of remittances from overseas Filipino workers from increasingly diversified geographical locations,” Espenilla said.

The central bank chief said “it is also worth noting that the recent decline in the peso should have minimal effects on the country’s macroeconomic conditions over the medium term.”

He said a peso depreciation will only have about 0.15 to 0.2 percentage points impact on inflation over a two-year period.

“This limited impact gives the BSP flexibility to take a longer term view of the peso,” he added.

As of end-July this year, rate of price increases averaged at 3.1 percent, slightly above the mid-point of the government’s two to four percent target range from 2017 to 2020.

Last July alone, inflation posted an uptick to 2.8 percent from month-ago’s 2.7 percent on account of faster inflation of housing, water, electricity, gas and other fuels index as well as transport, education , and restaurant and miscellaneous goods and services indices.

The central bank forecasts inflation to average at 3.2 percent this and next year and 3.1 percent for 2019. (PNA)