BSP sees further peso strengthening

11/09/2009

The Bangko Sentral ng Pilipinas (BSP) expects more pressures to keep the peso surging in strength as previously risk-averse foreign capital continue their flow to emerging markets like the Philippines as the dollar value continues to erode.

Such flows represent “an additional challenge” for regulator, BSP Gov. Amando Tetangco Jr. said.

These flows will remain unrestricted as authorities rely on market forces to determine the value of the local currency.

“Basically we’ve allowed market forces to determine the exchange rate and that is why you are seeing this appreciation,” Tetangco told reporters.

The local currency averaged 48.1394 per dollar in September before strengthening to P46.8513 in October. This month, however, the peso averaged lower at 47.626 per dollar thus far.

The strengthening currency, however, is not unique for the country since strong foreign inflows are boosting the values of the won in South Korea and the Taiwanese dollar.

“Most of the currencies in the region, I am not saying all because Hong Kong, for instance, has a currency board. So most of the currencies here have allowed market forces to determine the exchange rate and that is the policy we have followed in the Philippines,” he said.

He said as foreign flows rise there is consequent expansion in domestic liquidity that lifts the likelihood for inflation to consequently rise.

“In our case we engage in open market operations to make sure that any excess liquidity in the system is mopped up by the BSP,” he said.

Latest BSP data showed the inflation rate averaging at 3.2 percent in the first 10 months, which is well within forecast.

“The year-to-date average of 3.2 percent is well within the target range of 2.5 to 4.5 percent for 2009,” he said.

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