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BSP underscores need to smoothen fx movements

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla underscored the need to smoothen movements in the foreign exchange (FX) rate during the “The Asset 17th Philippine Summit” held recently in Taguig City.

“You got to come in and reduce the volatility,” explained Governor Medalla, who highlighted 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 consistently signals to the market its unwavering commitment to use the tools at its disposal to stabilize the exchange rate. “This underscores the importance of a credible central bank,” the Governor added.

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.

The BSP stands ready to provide liquidity and ensure that legitimate demands for foreign currency are satisfied when warranted.

During the summit, the Governor likewise 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 exceeds three-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,” Governor Medalla said.

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