‘Don’t panic,’ Marcos says after peso’s historic lows

MANILA, Philippines — President Marcos asked the public not to panic over the Philippine peso’s volatility, as the currency slightly recovered to close at P64.025 on Wednesday.

This showed that the peso gained 14.5 centavos against the greenback after opening at P64.08, ending a seven-session streak of record-low closing levels.

Experts said the Bangko Sentral ng Pilipinas (BSP) was taking the right approach to managing the peso’s volatility, but at the same time emphasized the need to preserve the central bank’s independence amid market turmoil.

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“Do not take it with alarm. Don’t panic. It is an effect of […] the rising prices of oil, and subsequently the rising prices of fuel, and its effect on the economy,” said Marcos in an interview with reporters in Muntinlupa City around 11:30 a.m.

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READ: Peso continues freefall, from 63-64:$1 in 8 days

The President also said the public can “take solace” in the fact that the government’s policy toward the peso is to “continue to defend the peso as hard as we possibly can.”

“We have all the tools to defend the peso. We have all the means to defend the peso, and with that in mind, we will continue to do all that we can to make sure that the value of the peso does not continue to go down, especially relative to the dollar,” he said.

READ: Battered peso sinks to new low, nears 64:$1

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“Our foreign exchange reserves are healthy. And that’s where we draw from to defend the peso,” he added.

Mr. Marcos, however, admitted that monetary measures have their limits, so the government would have to come up with “other ways” to address it, including keeping food inflation down.

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Right balance

Jose Cuisia Jr., a former governor of the Central Bank of the Philippines, the BSP’s predecessor, on the other hand, warned that efforts to prop up the peso against a broadly stronger US dollar could deplete the country’s foreign reserves.

The BSP can sell dollars from the country’s gross international reserves (GIR) to support the peso during periods of sharp depreciation. Although reserves remain above internationally accepted adequacy thresholds, they fell to a three-year low of $99.99 billion in September, partly reflecting the central bank’s interventions in the foreign exchange market.

BSP Governor Eli Remolona Jr. has said the central bank does not target a specific peso-dollar exchange rate, allowing market forces to determine the currency’s value. Instead, it intervenes to curb excessive volatility that could stoke inflation.

Cuisia said the BSP had struck the right balance, noting that the central bank could not draw on its reserves indefinitely.

“The international reserves have gone down below $100 billion already,” he said. “So that means they’ve been using [them] for intervention. But [Remolona] cannot use the whole thing up.”

Economists have attributed the peso’s weakness to a war-driven surge in oil prices, which has increased demand for dollars in energy-importing countries such as the Philippines. Uncertainty over the domestic economy’s growth outlook has also weighed on investor sentiment, adding pressure on the currency.

BSP, Fed factors

Expectations of another US interest rate hike have further supported the dollar, as higher yields could make dollar-denominated assets more attractive to investors.

Last week, the BSP raised its benchmark interest rate by a larger-than-expected 50 basis points to 5.5 percent to contain stubbornly high inflation. Although higher local rates can make peso-denominated asets more attractive to foreign investors, analysts have said these may not be enough to reverse the peso’s depreciation.

At this point, Cuisia said the peso could easily weaken further to 65 per dollar under current market conditions, particularly if the Federal Reserve, the US central bank, raises interest rates this week.

“It’s dependent not only on the moves of the BSP, but also the Fed,” he said.

Ser Percival Peña-Reyes, a senior research fellow at the Ateneo Center for Economic Research and Development, said more aggressive BSP intervention to defend a particular exchange-rate level would be risky and potentially costly, especially if the peso’s weakness stems from underlying pressures such as elevated global oil prices and a stronger dollar.

Still, Peña-Reyes said the BSP should be prepared to intervene more decisively if the peso’s decline becomes disorderly.

“A credible willingness to counter disorderly trading can deter speculators without committing the BSP to an expensive and potentially unsustainable battle against global market forces,” he added.

Undue pressure

Peña-Reyes also warned that Marcos’ remarks could put undue pressure on the BSP to defend the peso, potentially constraining the central bank’s policy flexibility.

“Public statements from the President can raise market expectations that the BSP will intervene more aggressively, potentially narrowing its policy flexibility,” he said.

“The BSP must retain its independence and base interventions on market conditions, inflation risks, and financial stability rather than political pressure,” he added.

Cuisia, meanwhile, said he expected the BSP to stand firm in defending its independence, while acknowledging the difficult position facing the central bank.

“It’s a very tough problem,” he said. “I wouldn’t want to be in the shoes of Governor Remolona.”

Privileged statement

The Bagong Alyansang Makabayan (Bayan) coalition, meanwhile, blasted Marcos over his remarks and accused his administration of having no plans should the crisis get worse.

“‘Don’t panic’ is a privileged statement from someone who does not have to deal with rising prices and high interest rates,” Bayan president Renato Reyes Jr. said in a statement also on Wednesday.

“It is the reaction coming from an incompetent and insensitive regime that does not acknowledge the internal weakness of our economy and conveniently blames only external factors as if the current government is totally blameless,” he added.

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Reyes also accused the government’s lack of plan, saying Marcos was more “busy with budget insertions and pork barrel allocations.” —With a report from Inquirer Research