BSP looking at possible cases of peso speculation

THE BANGKO Sentral ng Pilipinas (BSP) is closely monitoring possible cases of speculative activities amid the peso’s continued weakness, Finance Secretary Benjamin E. Diokno said on Friday.

“The central bank has initiated actions to moderate sudden movements in the peso including participation in the foreign exchange market as well as looking at possible cases of speculative activities,” Mr. Diokno said in a conference at the Philippine Embassy in Washington, D.C. on Friday.

“The central bank encourages the use of an organized and accessible formal market for all transactions and is taking steps to manage any disruption in the Philippine financial market,” he added.

On Friday, the local unit closed at P58.935 against the greenback. For the year so far, the peso has weakened by 15.55% or P7.935 from its P51 close on Dec. 31, 2021.

Mr. Diokno, a former BSP governor and a current member of the Monetary Board, attributed the peso’s weakness to the US Federal Reserve’s hawkish monetary policy and market expectations of further tightening, as well as concern over a possible global recession.

“While we continue to subscribe to a flexible foreign exchange rate regime, we are looking closely at the implications of the foreign exchange rate movement on inflation,” he added.

Headline inflation surged to 6.9% in September, its fastest pace in over 13 years, mainly driven by rising food, utilities and transport costs. This also marked the sixth straight month that inflation breached the BSP’s 2-4% target this year.

“Inflation has continued to remain elevated among both emerging and developed markets. Most countries have already breached their targets, mainly due to a combination of high global commodity prices and the broad strengthening of the US dollar. Furthermore, the scarring effects of the pandemic on the economy linger,” Mr. Diokno added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that local banks are supportive of the BSP’s initiatives against peso speculation.

He also noted regulators have recently sent signals that would discourage undue speculation on the peso, such as tightening reporting of banks’ foreign exchange transactions and increasing intervention in the foreign exchange market. The BSP is also planning to increase debt issuance to reduce supply of pesos that could be used to purchase US dollars in the market.

“All of these discourage undue speculation on the peso, while emphasizing the continued servicing of legitimate forex transactions as supported by the required documents,” he added.

The BSP earlier this month warned market players not to take “undue advantage” of the peso.

“We ask those who have the means not to take undue advantage of changing market conditions. This does not help the Philippine peso; it does not help the Philippines,” it said.

Last week, Bankers Association of the Philippines said it “continues to work closely with the BSP for orderly, fair and transparent markets minus the unproductive activities that only hurt the public.” — Luisa Maria Jacinta C. Jocson