Governor Felipe M. Medalla of the Bangko Sentral ng Pilipinas (BSP) recently underscored the need to smoothen movements in the foreign exchange (FX) rate during the “The Asset 17th Philippine Summit” held in Taguig recently.
The Asset provides authoritative as well as unbiased coverage of the financial markets together with independent financial research on major Asian issues. The theme for this year’s event is “Mobilizing investments, accelerating growth.”
“You got to come in and reduce the volatility,” the BSP chief said while highlighting the fact that BSP’s participation in the market centers on promoting FX rate stability and the country’s broader financial stability.
In accordance with its mandate of ensuring price stability, the BSP has consistently sent signals to the market of its unwavering commitment to utilizing the tools at its disposal to stabilize the exchange rate.
As a matter of policy, the BSP’s participation in the FX market is limited to tempering sharp fluctuations in the exchange rate. The BSP does not target nor avoid any level of the peso and does not alter currency trends.
According to Medalla, the BSP stands ready to provide liquidity and ensure that legitimate demands for foreign currency are satisfied when warranted.
“This underscores the importance of a credible central bank,” the governor added.
The Philippines’ full-year economic target remains doable
During the summit, Governor Medalla also shared the Philippines’ economic outlook and development strategies. “Let me share with you the latest numbers,” he said. “For the first half of 2022, the economy posted a 7.8-percent growth. This suggests that our full-year target of 6.5 to 7.5 percent is very much doable.”
“From 2023 to 2028, we expect the economy to expand even faster at 6.5 to 8 percent. This is one of the highest projections among the ASEAN+3 countries, which include Japan, South Korea, and China,” he added. “As for foreign direct investments, we reached all-time high inflows of 12.4 billion US dollars in 2021. From January to July of this year, FDI inflows reached 5.1 billion US dollars. Our latest revenue collections reflect higher economic activity. This is bolstered by the digitalization of the BIR and the Bureau of Customs (BOC), which has significantly improved the efficiency of our tax administration.”
The BSP chief also expressed appreciation for the BSP’s accumulation of Gross International Reserves (GIR) during the past decades.
At end-September this year, the GIR remains robust at USD 93 billion, providing an external liquidity buffer of 7.4 months’ worth of imports of goods and payments of services. This figure exceeds at least 3-months’ worth of imports that the International Monetary Fund (IMF) suggests as a rule of thumb in reserve adequacy.
Under its expanded toolkit and in line with the central bank’s price stability mandate, the BSP is now employing the reserves to sell dollars to help manage foreign exchange movements.
The central bank chief also explained that while the GIR now represents lower import cover compared with earlier months, BSP may tap other sources of dollars.
He said the GIR is supported by steady inflows of foreign exchange from Overseas Filipino remittances, business process outsourcing, and foreign direct investments.
“The tools that we can use for intervention are much larger than our reserves,” the BSP chief said.