Near-term volatility expected BSP to maintain presence in forex market to keep movements aligned

MANILA, Philippines - The Philippines should continue attracting investors despite increasing market volatility due to US economic recovery, the Bangko Sentral ng Pilipinas said.

“We expect some volatility in the markets in the near-term because of the growing consensus for a strong US dollar,” BSP Governor Amando M. Tetangco Jr. told the audience at a Rotary Club meeting yesterday.

 “But as with the previous episodes of volatility and portfolio outflows, there will be core investors who will remain invested in the Philippines because of our positive growth prospects and sound fundamentals,” Tetangco said.

The economy grew by a slower-than-expected 5.8 percent in the nine months to September last year, below the government’s 6.5- to 7.5-percent target for 2014. The fourth quarter and full-year gross domestic product data will be released by the end of this month.

For this year, the government has raised the assumption to seven to eight percent.

The volatility in the financial markets should weaken the peso but Tetangco said the BSP will make sure there will be no excessive movements at the foreign exchange market.

 “Our policy remains the same and this means we allow the exchange rate to essentially be determined by market forces,” Tetangco said.

“But during these periods of volatility, you can expect the BSP to maintain a presence in the foreign exchange market to keep the movements aligned with fundamentals and with those in our peers in the region,” Tetangco said.

The peso ended 2014 at 44.72 to a dollar, weaker than its 2013 finish of 44.395. The local unit averaged P44.4:$1 last year, also weaker than its P42.45:$1 average in 2013.