THE PESO’s “gradual” depreciation is “consistent” with government efforts to stoke faster economic growth, the central bank chief said yesterday, adding that the local currency should stabilize soon.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. downplayed observations that the peso has been a laggard compared to other Asian currencies over the past few weeks, saying that foreign exchange alone was an inaccurate measure of an economy’s performance.

Fast gross domestic product growth, slow inflation and job creation should also be considered, he said.

“Each economy faces its own unique challenges and should therefore be deliberately implementing policies that suit its circumstances and needs. The Philippines is doing the correct thing in prioritizing a more investment-led economic growth,” Mr. Espenilla said in a mobile phone message.

“Allowing the peso to depreciate gradually to a more appropriate level is fully consistent with that strategy.”

Mr. Espenilla’s comments come after the peso weakened to a new low versus the dollar last Friday when it closed at P51.49, its weakest value since a P51.60 finish on Aug. 24, 2006.

State economic managers assumed a P48- to P50-per dollar exchange rate when they drafted this year’s national budget.

Next year’s budget assumes a P48- to P51-per-dollar exchange rate.

Central bank officials have said that such figures are not directly comparable since current market conditions are not the same as those 11 years ago.

Analysts have said that the Philippines’ vanishing current account surplus has significantly weighed on sentiment towards the local currency, adding to external developments and geopolitical tensions that turn investors away from emerging-market currencies and towards the dollar as safe haven.

But Mr. Espenilla has said that the country’s external trade deficit is but normal for the Philippines, as the sustained strength in monthly imports merely reflects the local build-up of capital for the government’s ambitious infrastructure spending plan.

“[W]e think that the peso has now sufficiently adjusted and can be expected to regain relative stability going forward,” Mr. Espenilla said.

“This soft landing is reinforced by effective discipline in fiscal management and a well-designed and well-executed public investment program.”

The government is looking to spend over P8.44 trillion in the next six years for big-ticket infrastructure projects that will be funded largely by fresh revenues from a tax reform program, whose first of up to five packages is expected to be approved by Congress and be in place by 2018.

Once implemented, the package will allow the government to pursue its development plans without overly relying on domestic and foreign borrowings.

Mr. Espenilla assured that the BSP will stay in the foreign exchange market to temper sharp swings and will be “ready to use its very ample international reserves and deploy its full policy and regulatory arsenal” should speculators attempt to “exaggerate” any currency value.

The central bank will maintain its “flexible” exchange rate policy, Mr. Espenilla said, with the monetary authority mainly focused on keeping the inflation rate within the 2-4% target band. The BSP does not target a specific value for the peso, allowing market forces to dictate the daily exchange rate. — Melissa Luz T. Lopez

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