BSP to temper forex mart intervention
The Bangko Sentral ng Pilipinas (BSP) will come up with a new framework that will allow it to reduce its intervention in the foreign exchange market, as easing consumer price hikes lessen the urgency to support the local currency.
BSP Governor Eli Remolona Jr. explained on Thursday that “intervention should only happen during times of stress,” adding that the central bank has been “intervening a bit too much.”
“We’re developing a framework for intervention,” Remolona said. “If it’s about containing stress; that also means intervention should be infrequent.”
Such a framework is expected to be implemented this year, he said.
In September last year, the peso nearly touched the 57-per-dollar mark against the US dollar, becoming one of Asia’s worst-performing currencies in the third quarter.
The BSP at the time hinted at defending the peso should it slide past the 57-level, as rising rates in the United States powered up the dollar while soaring world crude prices bloated the Philippine import bill.
But the local currency gained some strength starting the fourth quarter and has been trading below 56 mark since.
The BSP dips into the country’s foreign reserves and sells some dollars whenever it sees the need to prop up the local currency. At the same time, its anti-inflation interest rate hikes can help support the peso by making domestic yields more attractive to investment inflows.
The Marcos administration now expects the local unit to average between P55 and P58 against the US dollar next year until 2028, weaker than its old forecast range of P53 to P57, latest projections by the interagency Development Budget Coordination Committee (DBCC) showed.
The government projected such a currency weakness as it also expects imports to rebound in 2024.
New assumptions by the DBCC showed imports are forecast to return to growth mode at 7 percent this year—from a projected 3-percent contraction in 2023—on the back of stronger infrastructure investments that could push up inbound shipments of construction materials. The state also expects “increased domestic production capacity.”
In a commentary sent to journalists, London-based Capital Economics said most Asian currencies are projected to recover in 2024 after being pressured by the global tightening cycle. INQ
