Philippines weighs more tools to support peso as currency pressure deepens

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Philippines weighs peso support tools

Highlights

Bangko Sentral ng Pilipinas is considering tools like tighter forex position limits and increased BSP securities issuance after a surprise 50-basis-point rate hike this month.
Authorities may intensify spot and forward-market dollar sales and deploy derivatives, while President Marcos Jr. pledges to defend the peso amid continued weakness.
The Philippine peso, Asia's worst performer in October, faces pressure from high energy prices and heavy fuel import reliance, prompting calls for both fiscal and monetary responses.

Policy options under discussion

As reported by BusinessWorld Online, analysts say Philippine authorities may consider a broader set of currency-stabilization measures after the central bank delivered a surprise 50-basis-point rate increase this month to help contain inflation and ease pressure on the peso.

Among the options cited is a tighter limit on banks' overbought foreign-exchange positions, which would reduce the amount of dollars lenders can hold above their dollar liabilities and could increase U.S. currency supply in the market. Paul Favila, Citigroup Inc.'s country officer in the Philippines, said such a move is possible and could help curb speculation, although he added that the deeper issue is the country's heavy reliance on imports at a time of higher commodity prices.

Analysts also point to larger issuance of BSP securities and greater use of short-term tools such as the term-deposit facility. Those instruments allow the Bangko Sentral ng Pilipinas to absorb more liquidity from the financial system, potentially helping temper pressure on the exchange rate.

Market intervention and wider economic implications

The central bank may also step up spot and forward-market intervention by selling dollars from the country's foreign-exchange reserves and by using derivatives to shape expectations for future exchange rates. The Philippines has already used part of its reserves to limit the peso's decline, while stronger verbal intervention remains another option if policymakers want to signal that recent currency moves are excessive.

President Ferdinand Marcos Jr. said on Wednesday that the government will defend the peso "as hard as we possibly can." Analysts add that fiscal support could also help improve market sentiment if the Department of Finance demonstrates that the fiscal gap and debt levels will be contained, reducing pressure on the BSP to tighten policy more aggressively.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co. in Manila, said the government needs to contain the fallout from the weaker peso and pursue both monetary and non-monetary steps to restore investor confidence. The peso is Asia's worst-performing currency so far in October, with elevated energy prices and the country's fuel import dependence adding to the strain.

In our earlier article on Philippine stocks rebounding despite a record-low peso, we covered how the PSEi recovered on bargain hunting even as the currency slid to an all-time low near P63 per U.S. dollar. We also noted that foreign flows briefly turned positive, but overall sentiment stayed cautious with investors closely watching further peso moves and broader macro conditions.

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