BSP won’t cut key rates - Buenaventura

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said yesterday monetary authorities were not inclined to cut key policy rates because of the recent weakness in the peso.

At the Philippine Dealing System (PDS), the peso weakened further to close 2.5 centavos lower at 51.985 from Tuesday’s close of 51.960 to the dollar. It touched a December 2001 low of 52.08 on Tuesday.

Buenaventura said the movement of the peso was being influenced by the general lack of confidence on the stability and growth of the world economy which has been depressing currencies worldwide.

"Although the country’s budget deficit was a concern, it was less important than the government’s ability to stick to the medium term development plan," he added.

Asked what effect the peso and a higher January-July budget deficit would have on overnight interest rates, Buenaventura told reporters: "This probably means we have to stay where we are, which is not bad because we are low enough."

The key overnight borrowing rate, set by the BSP, is at a decade low of seven percent while the lending rate is at 9.25 percent.

The BSP previously said it could match the US Federal Reserve if it cuts rates later this year.

Buenaventura also expressed optimism that the peso weakness would not last long.

"The movement is temporary. I’m sure this has more to do with regional developments. In general, there is lack of confidence in the world economy as well as concerns (about) Latin America. The local situation also does not help," he said.

Buenaventura was referring to a mounting fiscal deficit and concerns that data to be released this week could show that the country had already reached its full-year deficit target of P130 billion by end-July.

Interest rates in the secondary debt market have ticked higher in recent days because of the deficit concerns.

The Department of Finance is expected to release its official fiscal report today and currency traders said this would impact on the movement of the peso regardless of how good or bad the numbers were.

The peso was also tracking the movement of the Japanese yen as well as the other major currencies in the region.

The peso has been steady since February this year, but news of revisions in the economic targets sent traders scrambling for dollars, sending the peso closer to the psychological 52-to-the-dollar barrier.

Up until early this month, the BSP was unconcerned about the occasional dips of the peso against the dollar, saying that the gross international reserves (GIR) was comfortably at $14.8 billion.

BSP said the improvement in export earnings combined with the 45 percent increase in remittances from Overseas Filipino Workers (OFW) was providing the government a comfortable GIR level.