Peso still competitive vs other currencies - BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) reiterated that the peso has maintained its price competitiveness against other currencies in the region despite weakening against the dollar in the past few days amid the worsening debt situation in Europe.

BSP Governor Amando M. Tetangco Jr. said the peso remained broadly competitive as its movements and volatility have been within the range of regional currencies.

Tetangco pointed out that the BSP would continue to monitor global risk appetite and see if the country’s policy settings need to be adjusted.

“The BSP will continue to monitor global risk appetite and see if our policy settings need to be adjusted so that capital flows in or out of the country remain orderly and their adverse impacts on the economy are mitigated,” he said.

For his part, BSP Deputy Governor Diwa Guinigundo said in a text message to reporters that the movement of the peso against the dollar reflects the volatility of the financial markets as well as the uncertain global economic prospects.

“Risk aversion has climbed, sending foreign investors to flock to what they believe to be safe haven assets,” Guinigundo.

The peso retreated by nine centavos to close at its weakest level in eight months at 44.08 to a dollar yesterday from 43.99 to $1 last Monday. It closed at 44.21 to $1 last Feb. 1.

The peso hit a low of 44.23 to $1 and a high of 43.94 to $1. Trading volume at the Philippine Dealing & Exchange Corp. amounted to $1.20 billion, slightly down from Monday’s $1.381 billion.

Monetary authorities cited the risk aversion brought about by the economic uncertainty in the US as well as the sovereign debt crisis in Europe.

“The Philippines, despite its robust macroeconomic fundamentals, and just like most other emerging markets, has seen some partial reversal of capital flows and as a result, the peso has settled somewhat weaker,” Guinigundo said.

However, he reiterated that the peso remained price competitive against other currecies in the region and is well within the foreign exchange forecast of 43 to 45 versus $1.

“In real effective terms, the peso remains competitive. As to possible impact on inflation, the peso averaged around 43.30 in the first eight months of the year which is within our assumed foreign exchange rate for the peso,” the BSP official.

New York-based think tank Global Source Partners revised its foreign exchange assumption and is looking at a weaker local currency at 43 to $1 instead of 42 to $1 this year.

“This turbulent period will likely be marked by bouts of peso weakness, as currencies perceived to be safer such as the US dollar are temporarily favored. Hence, we now see the exchange rate stabilizing at 43/$ instead of P42/$ by yearend before regaining strength and settling at about $41/$ by end-2012,” Global Source said.

It added that the country’s macroeconomic fundamentals would continue to support a stronger peso in the longer term particularly in light of what are seen to be good prospects in the fiscal sector, a still relatively high interest rate differential, and with the odds in favor of uninterrupted external payments surpluses owing to resilient remittances as well as continued capital flows.