By Lee C. Chipongian
The central bank continues to assess the peso’s relative stability compared with other currencies despite volatilities.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo, in a recent press briefing, said they consider the peso still “relatively stable” when compared to the country’s major trading partners such as the US, Euro Area, Japan, China, among others.
The BSP, he said, is referring to the peso’s real effective exchange rates (REER) which measures the domestic currency’s movement against the US dollar relative to those of the other trading partners’ currencies adjusted for their respective inflation rates.
Guinigundo said that in the last five years, the peso REER relative to its trading partners has been stable. “It is relative because its real exchange value has been stable with its trading partners within a specific time period of five years despite some volatilities in nominal terms during the same period,” he explained. The Trading Partners Index or TPI includes 14 currencies and measures the nominal and REER of the peso. It includes Australia, Singapore, South Korea, Hong Kong, Malaysia, Taiwan, Indonesia, Saudi Arabia, United Arab Emirates, and Thailand.
In his presentation to the Lower House – part of the inter-agency Development Budget Development Committee’s briefing — he said the peso has depreciated 18.44 percent against the US dollar between July 30, 2013 and July 30, 2018. The Malaysian ringgit and Indonesian rupiah, in contrasts, depreciated more at 20.60 percent and 28.66 percent. The rest of regional currencies such as the Thai baht, Chinese yuan, Japanese yen, and Indian rupee were below 13 percent.
On a year-to-date basis, the peso has depreciated by 6.18 percent (July 30, 2018 versus December 31, 2017), second only to the rupee which fell 7.03 percent versus the US dollar. The yuan, in the meantime, depreciated by 4.64 percent, the Australian dollar by 5.20 percent, and rupiah by 5.93 percent.
The peso at the end of the first quarter averaged at P52 vis-à-vis the greenback, and P53 by the end of the second quarter.
The weaker peso reflected market concerns over the country’s widening trade gap and growing expectations of further US Federal Reserve rate hikes during the year, according to the BSP.
The peso further weakened to the P53-level in mid-June but a more firm signal from a hawkish BSP enabled the local currency to gain back lost grounds from P53.50 at the end of July to a flat P53 by last Friday, August 3.
The BSP has been closely monitoring recent fluctuations in the peso-US dollar transactions and the potential price pressures from excessive exchange rate volatility.
The BSP has signalled its readiness to increase benchmark rates to temper volatility since sustained pressures on the peso are affecting inflation expectations. Guinigundo said earlier that the volatility has introduced a new element in the inflation equation. He has said that “while monetary policy under the inflation targeting framework does not normally respond to exchange rate movements, a monetary action is justified when large depreciation would translate into higher price pressures.”