Fundamental support enough to keep peso stable - BSP

By Kathleen A. Martin, The Philippine Star

Posted at Apr 23 2014 08:04 AM | Updated as of Apr 23 2014 04:04 PM

MANILA, Philippines - The external payments position and sound macroeconomic fundamentals will continue to support the peso despite a balance of payments deficit recorded in the first quarter, a Bangko Sentral ng Pilipinas official said.

“There will always be volatility in markets and at some point, the peso will reflect these volatilities but there is fundamental support to the peso,” central bank Deputy Governor Diwa C. Guinigundo told reporters yesterday.

“Basically, it’s the fact that we expect the external payments position to remain favorable for the rest of 2014,” Guinigundo added.

The peso weakened yesterday, shedding 11 centavos to close at 44.535:$1 from its 44.425 to $1 finish on Monday.

Earlier this year, the peso traded on the 45:$1 band as the US Federal Reserve’s tapering of stimulus prompted investors and central banks across the world to rebalance their portfolios, causing sell-offs in a lot of markets especially those in emerging economies.

Net outflows from foreign portfolio investments amid sustained uncertainty due to the Fed’s policy actions primarily caused the country’s BOP deficit of $4.471 billion in the first three months of the year, a reversal of the $1.537-billion surplus in the same period in 2013.

These capital outflows have been reflected in the depreciation of the peso, the BSP has noted, although the local unit has been recovering lately as investments have been finding their way once again to the economy.

“We’ve seen how capital outflows have accelerated in the latter part of 2013 and continued on in the first months of 2014,” Guinigundo said.

“But I guess as we continue to strengthen our macroeconomy and we continue to see recovery in the advanced economies particularly in the US, the market sentiment that drove capital outflows during that period will likely be moderated and hopefully reversed for the rest of 2014,” he said.

“What was lost in terms of peso depreciation in 2013 has been moderated so far in the recent movement of the peso,” Guinigundo said.

The central bank still expects the BOP position to settle at a surplus of $3 billion by year-end, despite being below last year’s $5-billion surplus.

“We are expecting a BOP surplus in 2014. and this is on the basis of continued growth in exports of about six percent, remittances of about five percent, and as tourist receipts and BPOs (business process outsourcing sector) are expected to be robust,” Guinigundo said.

BSP Governor Amando M. Tetangco Jr. on Monday said the central bank will continue to maintain a “strategic presence” in the foreign exchange market in order to curb any excessive volatility in the peso-dollar trading.

The government expects the peso to average between 41:$1 and 44:$1 this year until 2016.

The peso in 2013 depreciated by 7.35 percent against the dollar, while its volatility– or the magnitude of its fluctuations-settled at 3.24 percent.