BSP says peso volatility healthy

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the volatility and appreciation of the peso against the dollar remains healthy and in the middle of the range allowing Filipino businessmen including exporters to plan more effectively.

BSP Governor Amando Tetangco Jr. said in an interview with reporters that the peso is still in the middle of the range in terms of volatility of the exchange rate as well as the rate of appreciation versus the dollar.

“The Philippine peso remains in the middle of the range of currencies in the Asian region in terms of volatility and appreciation against the dollar,” Tetangco stressed.

Latest data from the central bank showed that the local currency had a volatility of 2.4 percent, higher than the Chinese yuan which has a volatiltiy of one percent, or the Indonesian rupiah with 1.6 percent and the Taiwanese dollar with 1.8 percent, but lower than the Thailand baht which has a volatility of 3.4 percent, Malaysian ringgit and Myanmar kyat with 3.3 percent, and Singaporean dollar with 2.9 percent.

The BSP data showed that the Australian dollar had the highest volatility of 4.9 percent followed by the euro with 4.7 percent, Japanese yen with 4.5 percent, New Zealand kiwi with 3.7 percent, British pound with 3.2 percent, Korean won with 3.1 percent, Indian rupee with two percent.

Tetangco pointed out that the Thai baht was the most volatile currency in emerging markets with 3.4 percent while the Chinese yuan was the least volatile at one percent. The Australian dollar was the most volatile currency in advanced economies with a volatility of 4.9 percent.

“So we are in the middle, we are not the least volatile nor are we the most volatile. In fact we are closer to the lower end of the range,” Tetangco added.

In terms of appreciation, the BSP chief explained that the peso that closed 44.18 to $1 last Nov. 26 strengthened by 5.1 percent year-to-date against the greenback. The rate of appreciation was slower compared to the Thai baht’s 11.1 percent, Japanese yen’s 9.9 percent, Malaysian ringgit’s 9.7 percent, Australian dollar’s 9.2 percent, Singapore dollar’s 7.6 percent, New Zealand kiwi’s 7.5 percent, Taiwanese dollar’s 5.9 percent, and Indonesian rupiah’s 5.5 percent.

The appreciation of the peso, however, was faster than the Indian rupee’s 3.7 percent, the Chinese Yuan’s 2.7 percent, the Korean won’s 2.2 percent while the euro depreciated by 6.5 percent and the Brisith pound by 1.1 percent against the US dollar.

 “In fact if you look at the rate of appreciation, we have appreciated less than the currencies of competing countries like Thai baht, Malaysian ringgit, and Indonesian rupiah. So in relative terms, we have not appreciated against the US dollar more than those currencies which means that in terms of relative strength of the peso it has remained more or less the same,” Tetangco said.

He said the competitiveness of the peso improved as other currencies appreciated faster than the local currency.

The central bank has vowed to contain excessive volatilities in the foreign exchange market in order to “smoothen” the movement of the peso against the US dollar to help business and consumers plan more effectively. It moves in response to market forces but with scope for central bank participation in the foreign exchange market to smoothen sharp fluctuations.

He said currencies have been strengthening due to the weakness of the US dollar brought about by its fragile economic recovery as well as the stronger-than-expected economic growth in emerging economies particularly in Asia including the Philippines.

“The longer term factors would be the performance of the economy (in terms of growth). If you have a good macro economy, the tendency is for your currency to appreciate,” he said.

The BSP also pointed out that the flow of capital into emerging economies including the Philippines also determine the moverment of the exchange rate.