Peso up on BSP intervention signals

The peso appreciated against the dollar on Wednesday after the Bangko Sentral ng Pilipinas (BSP) chief said they would actively intervene in the foreign exchange market to manage sharp swings in the currency.

The local unit closed at PHP 57.475 per dollar, strengthening by 15.5 centavos from its PHP 57.63 finish on Tuesday, Bankers Association of the Philippines data showed.

The peso opened Wednesday’s session a tad stronger at PHP 57.60 against the dollar. Its worst showing was at PHP 57.78, while its intraday best was at PHP 57.41 against the greenback.

Dollars exchanged climbed to USD 2.49 billion on Wednesday from USD 2.11 billion on Tuesday.

The local unit rebounded against the dollar after BSP Governor Eli M. Remolona, Jr. said the central bank would intervene more forcefully in the market during extended periods of peso weakness due to its effect on inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The dollar-peso closed lower as the market responded to the BSP governor’s comment saying the central bank will intervene more forcefully on peso weakness,” a trader likewise said in a phone interview.

For Thursday, the trader sees the peso moving between PHP 57.20 and PHP 57.60 per dollar, while Mr. Ricafort expects it to range from PHP 57.35 to PHP 57.65.

Mr. Remolona told Bloomberg on Tuesday that the BSP is intervening more forcefully during periods of extended peso weakness as part of a new strategy, gradually moving away from day-to-day intervention.

The BSP adopted a new formula that determines the magnitude of peso losses that require stronger intervention to curb price pressures, Mr. Remolona said in an interview Tuesday. He declined to elaborate on the formula.

The BSP used to intervene to smoothen day-to-day volatility, the BSP chief said. “We now understand there are thresholds: a depreciation of the peso doesn’t cause inflation to go up until it’s enough of a depreciation,” he said.

The governor also said “there’s a risk” of the local currency dropping again to the record low of PHP 59 per dollar given the peso’s volatility though he said authorities aren’t worried about specific levels. — A.M.C. Sy with Bloomberg