Guinigundo Sees Peso Able to Sustain Levels After Rebound

  • Peso is best performing Southeast Asian currency this year
  • Philippines has room to confront shocks in 2016: Guinigundo

The rebound in the Philippine peso to near the strongest level in two months can be sustained, central bank Deputy Governor Diwa Guinigundo said, citing ample reserves and surpluses in the current account and balance of payments.

“If we consider domestic factors, we have scope for the peso to be generally stable and exchange rates at these levels can be sustainable over a longer period,” Guinigundo, 61, said in an interview in his office in Manila Tuesday. “Pressures in the peso may be considered more manageable because of healthy macroeconomic fundamentals.”

The impending increase in U.S. interest rates is putting pressure on emerging markets, complicating monetary policy as central banks seek to support growth while guarding against capital outflows. Singapore today eased monetary policy for the second time this year as the economy narrowly avoided a technical recession, saying it will reduce “slightly” the pace of appreciation in the local dollar.

“While there is pressure for the dollar to strengthen, the peso will be among the least affected because we have constant inflows from remittances, outsourcing,” said Antonio Espedido, treasurer at China Banking Corp. in Manila. “Structurally, our outflows are more controlled, giving us surpluses every year.”

Stable Reserves

The peso, which climbed to a two-month high on Monday, was little changed Wednesday at 46.08 per dollar.  It is still the best performing Southeast Asian currency tracked by Bloomberg this year, and the nation’s reserves have remained stable at more than $80 billion, in contrast to others including Indonesia and Malaysia, where they have declined.

ING Groep NV on Oct. 12 said it is reviewing its year-end forecasts of 46.8 pesos per dollar for 2015, and 47 pesos for 2016.

“Recent external developments have been favorable and could extend to the end of the year and in 2016, especially if the Fed guidance for normalization is extremely more modest than currently expected and that China’s economy grows at 6 percent to 7 percent, reducing emerging-market risks,” Joey Cuyegkeng, an economist at ING Groep NV in Manila, said in a note.

Refraining from joining a global round of monetary easing this year gives the Philippine central bank room to confront shocks through 2016, Guinigundo said.

‘Monetary Space’

“With a policy rate of 4 percent, and inflation forecast to be much lower than that next year, Bangko Sentral ng Pilipinas continues to have monetary space to handle domestic and external shocks,” Guinigundo said. “It is very difficult to be definite about the future. Will the uncertainty of the timing and magnitude of U.S. interest-rate normalization be resolved? Will China show better output numbers moving ahead? You have too many balls in the air.”

While inflation eased in September to the lowest since at least 1997, the central bank forecasts price gains will accelerate in 2016 and 2017 yet remain within target. The pick-up in inflation will be gradual and risks include the El Nino weather pattern, weakness in the peso, and power rate increases, Guinigundo said.

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