Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona said the peso vis-à-vis the US dollar is not weak at all, rather the greenback has edged up on mixed data of the past few weeks, and this has put pressure on most Asian currencies.

“There’s some volatility, more than usual, but we see it as being an issue of a strong dollar rather than a weak peso,” Remolona said in an interview with CNBC on Friday, Aug. 18.

The exchange rate on Friday hit a low of P56.65 intra-day, but it was not as low as Aug. 17’s intra-day of P56.81. The peso did touch P56.99 and nearly breached P57 last week before recovering to near the mid-range of P56.

The peso closed stronger at P56.18 Friday from the previous day of P56.77. The volume was higher at $1.46 billion compared to Thursday's $960 million, based on data from the Bankers Association of the Philippines.

Remolona said the hawkish signals from the US Federal Reserve’s (US Fed) minutes from its July 25 to 26 meeting has affected the spot market volatility. The Federal Open Market Committee (FOMC), which decides the monetary policy of the US Fed, has hiked US rates by 25 basis points (bps) last month. The FOMC minutes indicated that another rate increase may be coming.

“There’s some amount of risk aversion going on in the currency markets, partly because of the Fitch downgrade of the US and partly because of the minutes of the FOMC. The minutes were more hawkish than the actual decision of the FOMC,” he said.

Meanwhile, the BSP chief said its first line of defense, the country’s $99.7 billion international reserves, is sufficient buffer against external shocks, including hits on the peso.

“I see more than ample reserves in the Philippines. We do worry about a possible slowdown next year in the global economy. We do worry about possible financial accidents (but) so far we’ve emerged unscathed from (those two) incidents. We worry about similar incidents in the future,” said Remolona.

He is referring to Credit Suisse of Switzerland which ran into financial trouble and eventually acquired by its rival, UBS last April. The European bank’s collapse came after news of several other failed US banks in March of this year, including Silicon Valley Bank, Signature Bank and Silvergate Bank.  

Last Aug. 11, Remolona said the BSP has the tools to stabilize the peso-US dollar exchange rate and keep it at P55 or below this level in the next months.

BSP has three tools they use to ease off pressures from the peso. One is monetary policy which is an inflation-fighting tool but Remolona said this has side effects on the exchange rate.

The other more active tool is the BSP’s intervention in the exchange rate market. Last year, when the peso started its rapid fall and was about to break past P60, the BSP has become very aggressive in supporting the peso by selling more US dollars.

The third tool BSP uses to stabilize the exchange rate is the pre-emptive forward guidance. These are hints of what the BSP intends to do next as far as monetary policy is concerned.

The BSP has a flexible and free-floating exchange rate policy, which means it is market-determined. However, it is prepared to participate in the exchange rate market to ensure orderly market conditions and to reduce excessive short term volatility.