BSP will allow peso to strengthen

MANILA, Philippines - The peso’s appreciation has been justifiable and the Bangko Sentral ng Pilipinas (BSP) will allow it to strengthen some more unless such is a product of speculation, BSP Governor Amado M. Tetangco said yesterday.

“Peso is fundamentally supported. Our official action is to minimize excessive volatility. If the flows are structural, we will allow the peso to appreciate,” Tetangco told reporters on the sidelines of the Financial Executives of the Philippines National Convention in Makati.

The peso strengthened at 41.430 to a dollar in yesterday’s trading, up from Thursday’s close of 41.470.

It traded between a high of 41.36 and a low 41.45. The higher-end is the strongest in four and a half years.

Dollars traded amounted to $604 million, down from $887.300 million the day before.

 “There was a positive sentiment as a result of the expected data release in the US and ECB (European Central Bank) announcing it will buy up bonds,” a trader said by phone.

ECB said it will continue with its Outright Monetary Transaction program, which is essentially an unlimited bond-buying program of the central bank to help push down interest rates in crisis-stricken European nations. This is in hope that such would spur lending activities and boost growth.

A strong peso has worried exporters, which claimed that some businesses have closed shops as a result of the currency’s stellar performance. A firm peso, while making imports cheaper, also trims dollar export earnings when they are converted into pesos.

Reacting to Tetangco’s comment on the peso, Sergio Ortiz-Luis, president of the Philippine Exporters Confederation, said it will be up to the BSP to take whatever action to manage the peso, if necessary.

“But our belief that speculation has also driven the peso’s appreciation a bit,” he said in a phone interview.

Despite this, Ortiz-Luis said the export growth target of nine- to 10-percent for the year will be retained for now. “We will not change our target,” he said.

BSP, which has stressed a market-determined exchange rate, has kept space to intervene in the peso-dollar market to smoothen volatility, which if too sharp may be harmful to businesses. This means the BSP has been buying up dollars to manage the peso’s strength.