Line in the sand for the peso

PHILIPPINES - In Brief 22 Oct 2022 by Romeo Bernardo

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We are not alone in scratching our heads over why Finance Secretary Benjamin Diokno, The Banker’s “Global Central Banker of the Year 2022,” said what he said. Briefly, Bloomberg[1] reported Secretary Diokno saying: (a) government is trying to prevent the peso from breaching P60/$; (b) it is prepared to spend $10 billion in the coming months to defend the peso; and (c) monetary authorities will consider rate hikes of 100bp during the Board’s remaining two meetings this year. We think that spilling these usually closely guarded secrets of the monetary authority is likelier than not to weaken its hand in managing the ongoing volatility in the foreign exchange market. The peso, which closed on Friday at P58.75/$, has been kept from approaching the P60/$ level by active BSP intervention. One financial market expert told us that markets will likely continuously test this line in the sand, with any artificial peso appreciation seen as dollar buying opportunity. In the end, the BSP’s modest $10 billion ammunition, may just end up being wasted. At this time, we are inclined to think that coming a few days after President Ferdinand Marcos, Jr. said that government is going to defend the peso, the finance secretary is merely backing up his boss, whom he probably briefed with these set of numbers. We gather that Secretary Diokno has not consulted the Monetary Board prior to making the statement. We are closely watching how monetary authorities will react to what looks to us not in keeping with the Constitution, the BSP Charter and past practice. The BSP’s independence and credibility in crafting and implementing monetary policy have been built up incrementally over the past almost...