June 19, 2018 / 5:01 AM / 4 months ago

Philippine central bank says ready to rein in peso volatility

MANILA, June 19 (Reuters) - The Philippine central bank said on Tuesday it will not tolerate sharp swings in the peso exchange rate even as it reiterated that the currency was supported by sound economic fundamentals.

The Philippine peso, which is hovering at 12-year lows, has lost 6.4 percent of its value against the U.S. dollar so far this year, making it Asia’s worst-performing currency.

“The BSP (Bangko Sentral ng Pilipinas) is ready to act to prevent excessive peso volatility,” Governor Nestor Espenilla said in an economic briefing in Tokyo which was live-streamed on Facebook.

Espenilla said the peso’s movements were market-driven, adding that the currency continued to draw support from the country’s healthy macroeconomic fundamentals.

The Philippine economy remains one of the fastest-growing economies in Asia after posting 6.8 percent annual growth in the first quarter, giving the central bank plenty of leeway to control inflation.

Annual inflation quickened much less than expected in May, but the posted rate of 4.6 percent was still the fastest in at least five years, and marked the third straight month that inflation breached the central bank’s 2-4 percent target.

The BSP raised rates for the first time in more than three years in May, and a slim majority of economists believe the central bank will raise interest rates for the second consecutive meeting on Wednesday.

Espenilla said the economy was not at risk of overheating, despite strong growth.

“We see limited evidence of this based on inflation dynamics,” he said.

The central bank governor said there were signs that inflation was slowing down and the BSP was likely to revise down its inflation forecasts as “we move forward”.

The central bank currently expects inflation to average 4.6 percent in 2018 and 3.4 percent next year, compared with its 2-4 percent target for both years.

The lower-than-expected inflation rate in May could have reduced the pressure on the BSP to pull the trigger again on Wednesday, some economists calling for a hold this week have said.

Reporting by Karen Lema Editing by Eric Meijer

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