The Philippine peso has dropped to an 11-year low against the dollar — but it is not expected to go into free-fall.
Bangko Sentral ng Pilipinas [central bank] Governor Nestor Espenilla called for calm yesterday (Sunday, August 12) citing the nation’s “strong economic fundamentals”.
“The peso is market-determined.” he said. “It’s natural for it to show volatility as it adjusts to market conditions and all the short-term uncertainties such as increased tension in North Korea.
“We don’t expect it to do a free-fall because our economic fundamentals now, unlike before, are solid and very strong.”
The peso has lost 2.5 per cent this year, making it one of the worst performing currencies in Asia. It weakened to 50.98 to the dollar on Friday, the lowest since August 2006.
The currency has been dropping as the nation heads to its first current account deficit in 15 years. Geopolitical concerns have also encouraged a flight to assets.
However, Mr Espenilla said: “The peso is capable of correcting itself as the market calms down and digests the relevant information.” He added that the central bank could act “strategically” if there was excess volatility.
Mr Espenilla, who took over as central bank chief last month, also said the Philippines needed to run moderate current account deficits to catch up on investments, such as increased infrastructure spending — a key aim of the Duterte administration.
“It’s natural for it to run moderate current account deficits. In fact, it’s sub-optimal for it to be persistently running current account surpluses,” he said.
“That’s like the equivalent of deploying our own savings to the world instead of using those internally to finance our own investment needs.”
“Lets calm down. We’re on the right track,” he said, rejecting what he termed as “fear-based hand wringing in some of the coverage.”
Currencies across the region have also been falling amid growing tensions between the US and North Korea.