Peso less volatile than other currencies in region – central bank

(Update) MANILA, Philippines - The peso fell almost two percent in the first three and a half months of the year but central bank governor Amando M. Tetangco, Jr. said it was less volatile than other currencies in the region. Tetangco said over the weekend that despite the occasional forays of the Bangko Sentral ng Pilipinas (BSP) in the currency market, monetary officials have had to do very little since the peso was not as volatile as last year. Along with the Indian rupee, Tetangco said the peso was the strongest performing currency in the region last year and it was not unusual for the exchange rate to correct this year. The rupee also depreciated by 1.85 percent so far this year while other currencies like the Malaysian ringgit, Indonesian rupiah, the Thai baht and Singapore dollar continued to appreciate. "To an extent, this is a correction," Tetangco said. "But the peso has not been significantly volatile and that is important." Tetangco said as long as the peso was moving in an orderly fashion according to market forces, disruption would not be a problem and economic cycles would have the ability to cope and adjust. Compared with currencies in the region, Tetangco said the peso was at the lower end of the volatility range at 1.24 percent along with the Indonesian rupiah, which is headed in the other direction. The Thai baht, in comparison, had a 2.34 percent volatility rate while the ringgit had 1.48 percent so far from January to the end of trading last week. In 2007, Tetangco said the peso's volatility rate was recorded at 4.51 percent as the currency appreciated by over 17 percent on the back of strong dollar inflows from exports, remittances, foreign direct and portfolio investments. Tetangco would not say how he thought the peso would behave for the rest of the year but he said the BSP was not overly concerned. Tetangco admitted though that the strength of the peso was largely responsible for keeping inflationary pressures at bay last year, amid the surge in the price of oil in the world market. "This is the market dictating the movement of the peso, our policy is just to smoothen that volatility," he said. "It wasn't that volatile anyway, we have been at the low end of the volatility range so we have not had to do much." The rest of the year, however, would depend on market development, Tetangco said. Market analysts have been predicting that the peso would test the P43:$1 level this year but it would strengthen towards the end of the year as the US dollar buckles under the pressure of the US presidential elections. Development Bank of Singapore (DBS) said the peso-dollar exchange rate had already bounced off the lower limit of its depreciation band, which the bank placed at P42.5 to P43.0. "This is in line with our expectations for the Philippine peso to return some of the gains chalked in the past few years," DBS said. "We remain wary that this may come about from US-led renewed risk aversion leading to emerging market jitters in the second quarter." DBS said the BSP also did not seem to mind the appreciation of the peso in the past, resisting mounting political pressure to cap the rise of the currency that has been eating through export and remittance incomes. "The main challenge confronting Philippine policymakers is how to balance between a potentially worse-than-expected external outlook and renewed inflation pressures from higher commodity prices, namely those pertaining to oil and rice," DBS said. According to DBS, there would be resistance to raising domestic interest rates to rein in inflation especially since there was a need to lean more towards domestic demand and government spending to support headline economic growth. "For now, the central bank appears content that the peso, and not interest rates, will be more appropriate in addressing inflation," DBS said. Unfortunately, however, DBS said the current environment posed several near-term difficulties. - GMANews.TV