Concern raised for exporters, OFW households

THE Bangko Sentral ng Pilipinas said it would continue to temper the volatility of the peso, which recently broke into the 46-to-a-dollar level, raising concerns on how it would affect households totally dependent on remittances.

According to BSP Governor Amando Tetangco Jr., it is still the policy of the central bank to allow a market-determined exchange rate, but it will intervene whenever the local currency takes sharp, sudden turns.

Tetangco said the BSP was not for or against a strong peso, but it would try to keep the currency on an even keel.

A sharp rise in the value of the peso will adversely affect exporters and households dependent on remittances sent by family members abroad, he said. But if the currency were to take a dive, it would cripple importers, as well as government and private institutions with dollar-denominated debts.

“The speed and direction of exchange rate movements affect sectors differently. Thus, the containment of excessive volatilities/unduly strong directional trends in exchange rate movements is more helpful to businesses, consumers and other economic agents as this gives them the opportunity to plan more effectively and time to make adjustments, as may be appropriate,” Tetangco said.

The central bank chief said the recent strengthening of the peso was due to rising dollar inflows, not only in the form of remittances but also of foreign direct and portfolio investments.

With the global economic turmoil seen to be on the wane, foreign investors have set their eyes on emerging markets like the Philippines to generate income, Tetangco said.

The Philippines and other emerging economies may expect an increase in capital inflows in the months ahead as signs of global recovery become more evident, he added.

The increase in capital inflows has its benefits, but it also has a downside, one of which is a sharp rise in the currencies of emerging markets, Tetangco said. Still, the BSP would continue to intervene in the market to keep the peso stable.

Also, the BSP has adopted investment strategies to make sure its buying of dollars in the foreign exchange market—a move that will temper the rise of the peso—will not result in losses for the central bank, Tetangco said.

In 2007, the BSP incurred billions in losses when the value of the peso shot up rapidly, forcing it to buy huge amounts of dollars.

“To ease the impact of exchange rate movements, we [BSP] are allowed to diversify holdings. In addition, we have also built up reserves in our surplus account that we can draw upon specifically during these times,” Tetangco said.

Concerns have been raised about the impact of the strengthening of the peso on domestic consumption.

Victor Abola, senior economist at the University of Asia and the Pacific, said the peso should be made to depreciate some more.

According to Abola, the domestic economy badly needs strong domestic consumption to counter the global downturn.

One effective way to bolster spending is to allow the peso to depreciate—a move that will increase the value of cash sent by overseas Filipino workers to their families here. An increase in the purchasing power of OFW households will accelerate growth in overall consumption, he said.

Consumption is a key growth driver for the Philippine economy, Abola stressed. –Michelle Remo, Philippine Daily Inquirer