Peso loses 1.5% since global selloff

The peso has lost 1.5 percent against the dollar since the global selloff last week but monetary officials expressed confidence that there was strong support for the currency despite its momentary weakness.

The Bangko Sentral ng Pilipinas (BOP) said yesterday that since the peso exchange rate was market-determined, it was being affected by factors and events such as movements in related markets as well as the behavior of other currencies.

BSP Governor Amando M. Tetangco Jr. said, however, that there was fundamental support for the currency despite the fluctuations in the regional markets.

"The underlying fundamentals of our economy have not changed and continue to be sound," Tetangco said. "So these will provide support for the peso."

According to Tetangco, the country’s balance of payments (BOP) position, for example, remained strongly in the surplus zone, removing the danger that monetary officials would not have the resources to smoothen the volatility of the currency.

The country’s balance of payments position was recorded at $730 million in January, boosted by the proceeds from the government’s $1-billion bond sale.

The January BOP surplus was significantly lower than the $1.925-billion surplus recorded over the same month last year but that was because the January bond offer was $2 billion.

Tetangco also downplayed fears that the BSP’s move to liberalize its foreign exchange rules would aggravate the weakness of the peso when it takes effect in April.

"The foreign exchange liberalization measures we announced are meant to respond to the growing economy and ensure that capital could move freely to most efficient uses," Tetangco said.

"Over time, we expect these policies to bring about benefits to the economy," he added.

The BSP had relaxed its limits on foreign exchange purchases by banks and individuals, saying the liberalization of its existing rules was made necessary by the growth of the financial market.

Central bank officials said the reforms are expected to ease the pressure in the market and lower transaction costs, denying that the BSP had been pressured to relax its rules to cap the appreciation of the peso.

Effective April 2 this year, individuals can buy up to $10,000 worth of foreign exchange from banks without getting prior approval from the BSP but only for non-trade purposes.

The new ceiling raised the existing over-the-counter limit from $5,000 that individuals could buy from banks for non-trade purposes without prior approval from the BSP.

Moreover, BSP would lift its no-splitting restrictions on forex purchases, one of the most critical checks against circumventing the absolute limit on how much foreign exchange individuals could buy without BSP approval.

The lifting of this restriction means that individuals can amass as much forex as they want by splitting their over-the-counter purchases into $10,000 transactions.

The BSP, likewise, imposed a symmetrical limit on the oversold and overbought positions of banks equivalent to 20 percent of their total unimpaired capital or an absolute limit of $50 million whichever was lower.

The new ceilings raised the restrictions on the overbought position of banks from 2.5 percent of total unimpaired capital or $5 million, whichever was lower. There was no existing limit on banks’ oversold position.