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Sunday, 13 August 2017 | MYT 3:39 PM

Philippine central bank says peso not in freefall

Espenilla said the BSP could use its huge pile of foreign exchange reserves to play a stabilising role in the market.

Espenilla said the BSP could use its huge pile of foreign exchange reserves to play a stabilising role in the market.

MANILA: The Philippine central bank on Sunday sought to soothe frayed nerves in the foreign exchange market after the peso hit an 11-year low, saying it was not in a freefall and assuring it would be on guard against excessive volatility.

"Let's calm down," Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla said in a statement, downplaying the peso's slump to 51.08 to the dollar on Friday, its weakest since August 2006.

Most emerging Asian currencies fell on Friday as investors dumped riskier assets amid a sharp escalation in tensions between the United States and North Korea.

"We don't expect it to do a freefall because our economic fundamentals now, unlike before, are solid and very strong. This is reflected in our investment grade (credit) rating," Espenilla said.

He said it was natural for the peso to show volatility as it adjusts to market conditions and all the "short-term uncertainties" such as heightened geopolitical tension.

The peso was "capable of correcting itself as the market calms down and digests the relevant information," he said.

Espenilla said the BSP could use its huge pile of foreign exchange reserves to play a stabilising role in the market.

"The BSP stands vigilant....We're on the right track," he said.

Espenilla also sought to downplay worries about the Philippines running a current-account deficit, which may widen to $1.6 billion in 2018, from an estimated $600 million shortfall this year, according to the central bank.

For the Philippines to sustain growth, he said it needs to catch up on high quality investments, especially infrastructure.

"It's natural for it to run moderate current account deficits. In fact, it's sub-optimal for it to be persistently running current account surpluses," he said.

"That's like the equivalent of deploying our own savings to the world instead of using those internally to finance our own investment needs."

A construction boom in the Philippines, fuelled by President Rodrigo Duterte's $180 billion "Build, Build, Build" infrastructure campaign, has contributed to the peso weakening amid a recent surge in capital goods imports, including excavators, road rollers and dump trucks.

With this trend expected to continue, the central bank last week said the peso was likely to "show continued depreciation."

Duterte has already approved the auction of 21 projects worth $16 billion, including the overhaul of Manila's shabby airport and a railway line on Mindanao island in the south. - Reuters

Tags / Keywords: Banking , Forex , Economy

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