MANILA, Philippines - The peso's appreciation is expected to persist but the Bangko Sentral ng Pilipinas (BSP) said measures unveiled last year would temper its rise and maintain monetary stability, a senior BSP official said.
“If foreign exchange continues to support the stock market, it will help further firm up the peso,” BSP Deputy Governor Diwa Guinigundo said in a text message to The STAR last Friday.
“And we expect the BOP (balance of payments) will remain in surplus for this year and the next. Thus, the peso may be expected to remain generally firm and stable,” he added.
Asked how the BSP intends to temper the peso’s strength which may cut through dollar export earnings and remittances values, Guinigundo said: “We shall continue to make our presence felt in the foreign exchange market.”
“By and large, our monetary stance and various macroprudential measures have helped maintain monetary stability.”
Financial markets have been in a bull run for the first eight days of trading in 2013, with the benchmark Philippine Stock Exchange index (PSEi) piercing through the 6,000-level and the peso closing at a fresh 58-month high of 40.61 against the greenback last Friday.
The BSP has kept a keen eye on capital inflows on risks they may stoke inflation, cause asset bubble formation and result into excessive peso appreciation. All are seen detrimental to the economy, prompting monetary authorities to impose measures last year.
These include, among others, a ban on foreign funds on special deposit accounts, expanded real estate exposure reporting for banks, formalized contract-to-sell financing and a cap on non-deliverable forwards set to take effect on March.
Measures have so far been effective, Guinigundo claimed, but also admitted foreign inflows would continue going to emerging markets such as the Philippines for better returns. These, however, have “fundamental basis.”
“Part of those flows is current account flows from exports, remittances and tourism (receipts). The other is portfolio investment going into, among others, equities markets,” he said.
“To me, the more important factor driving the peso strength is current account receipts which are much higher in volume,” he added.
As for portfolio inflows, Guinigundo said the local bourse remains safe from a repeat of a crash during the 1997 Asian financial crisis. For one, he said, valuations remain at par with listed companies’ real worth.
“Our price-to-earnings ratio remains generally manageable. If the corporate earnings further improve, the ratio will come down and provide more space for the bull run,” he explained.
Sought for comment, Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said more peso highs are coming as the foreign exchange tracks the PSEi and as the market awaits the BSP’s next move.
“Basically there is no demand for dollar so really the bias is for an appreciating peso in the near term. So, most likely the peso will further appreciate,” Ravelas said in a phone interview.
“Everyone is also waiting for the next move of the central bank so really, there is no reason for the peso to depreciate,” he added.