RP central bank to review foreign currency reserves

RP central bank to review foreign currency reserves

MANILA (Agencies): The Philippines central bank said yesterday it would review its targets for foreign currency reserves and balance of payments because of the cost of defending the peso since April.

"(The targets) will be reviewed to take into account what's happening now," Bank managing director Amando Tetangco told reporters.

The Bank on Friday gave in to speculative pressure on the peso, which fell 11.5 percent after being allowed to float.

Under its current targets, the Bank targeted gross international reserves this year at $13.9 billion, up from $11.8 billion at the end of 1996.

But reserves had already slumped to $10 billion by the end of last week, or less than three months' worth of imports.

The overall balance of payments surplus was put at $2.9 billion, compared to last year's $4.1 billion.

By the end of May, the BOP surplus was just $2 million because of large outflows to cover debt servicing and central bank dollar selling to shield the peso.

President Fidel Ramos appealed for calm yesterday as fears of higher prices and hoarding swept the Philippines following the plunge in the peso.

"I am appealing to all our people not to be suddenly traumatized by these actions of the Central Bank," Ramos told reporters. He said the move was not a depreciation or a devaluation but a situation where the Central Bank was "getting out as a market player."

Ramos, who said the decision to float the peso was made during an "intensive" meeting at the presidential palace Friday, said the International Monetary Fund and foreign investment houses were informed of the move, which they supported.

While officials offered assurances that inflation would remain at single-digit levels this year, some analysts voiced concern over the chain effect a lower peso would bring to an import- dependent economy.

The year-on-year inflation rate in June was 4.8 percent, with inflation target for the whole of 1997 pegged at 5.2 percent.

Economic Planning Secretary Cielito Habito said yesterday the peso depreciation was likely to settle at around 10 to 15 percent after it had recovered from the jolt of the devaluation.

"Once the initial knee-jerk reactions in the market subside, equilibrium will likely be restored at a level representing not more than 10-15 percent depreciation," he said.

Habito said there was no reason for the exchange rate to spiral because the Philippines' economic fundamentals remained sound while the productive sectors enjoyed robust growth rates.

Habito said "things could have turned for the worse" had the government continued to defend the peso against speculative attacks.

"It is in fact a good time to have a much-needed depreciation, because the inflation rate is very low at less than 5 percent," he added.