ECONOMISTS on Friday called on the Bangko Sentral
ng Pilipinas (BSP) to set aside worries over meeting its inflation
target, and instead tackle the problem of the continued appreciation of
the peso.
During a forum
organized by the Philippine Exporters Confederation, economists from the
private sector said the monetary authorities’ efforts to stem the
peso’s rise are not enough, adding that more should be done to help
exporters, business-process outsourcing companies and the families of
overseas Filipino workers.
They
said many instruments are at the disposal of the BSP if only it could
temporarily abandon its mandate of inflation targeting, as other central
banks in the world are doing.
University
of Asia and the Pacific economics professor Victor Abola said the BSP’s
fear of expanding money supply accelerating inflation is unfounded.
Abola
said money growth of above 20 percent in fast-growing countries did not
result in high inflation, adding that there was no long-term
relationship between the two.
“GDP
[gross domestic product] growth in the Philippines is negative to
inflation because you are able to supply the demand. So actually right
now before they lowered the monetary policy rates, the monetary policy
was tight because money growth was only at 7 percent, then economic
growth at 6.4 percent,” Abola said.
With
inflation no longer a concern, the BSP is free to move and put a clamp
on the appreciating peso by cutting its key interest rates further, to
as low as 3 percent for the overnight borrowing rate. This would keep
foreign capital seeking higher yields from entering the country, Abola
said.
Last month
the Monetary Board reduced its overnight borrowing and lending rates to
3.75 percent and 5.75 percent, respectively. Analysts said this surprise
move by the BSP was not done to boost growth but rather to keep the
peso from firming up against the US dollar.
Raul
Fabella, University of the Philippines economist and national
scientist, said the government must subsidize the BSP to the tune of P30
billion so it can absorb the losses when it buys dollars to defend the
local currency.
“BSP
loses when it purchases dollars using the pesos in the SDAs borrowed
from local commercial banks, to sterilize inflow of dollars,” Fabella
said, referring to the special deposit accounts (SDAs).
“Money
lost by the central bank for sterilization is a good use of the money.
It is toward a very healthy foreign exchange,” he added.
Sterilization
is done to temper the value of the local currency against its foreign
counterpart and, in the case of BSP, it is done by buying more dollars
from the market to weaken the peso. Bankers had been saying the BSP was
intervening in the market from time to time, to keep the local currency
from rising too much.
HSBC
earlier said the BSP may be prompted to cut interest rates rather than
incur more losses with its purchase of dollars, if not for price
pressures from food and oil.
Fabella
said the reason the BSP would rather borrow from the SDAs than print
more money is its fear of increasing money supply, which at a certain
level is inflationary.
“So if BSP can’t print money, then the [national government] subsidy is money well-spent,” Fabella said.
Exporters,
however, had been asking monetary authorities to take the drastic
measure of keeping the exchange rate fixed at a certain level, just like
what the Swiss central bank did. “If you want to keep exchange rate
fixed, you are no longer inflation targeting, then you devalue the
peso,” Fabella said.
It
would be easier for the BSP to let the currency stay at P42 for 10
years simply by buying huge volumes of dollars, higher than the amount
monetary authorities are currently allocating for this.
This is where the P30 billion would come in, Fabella said.
But
Ernest Leung, former finance secretary, said the BSP does not need the
subsidy because when it buys all the dollars at P40 and the peso weakens
to P45:$1, then it would have posted foreign-exchange gains.
“The
BSP has a range of tools it can use but a good question is why is it
not employing these? They’re too beholden to foreign fund managers
around them, telling them what to do,” Leung said.
Filomeno
Sta. Ana, Action for Economic Reforms executive director, said that all
the moves of the central bank are in the right direction so far, with
it intervening in the market every now and then.
It
also loosened its monetary policy last month, on top of the
announcement that it would keep foreign funds from getting into the
SDAs.
“That is de
facto capital control. It is already a form of capital control. They
just don’t want to announce it as such for fear of receiving negative
reactions from foreign investors,” Sta. Ana said.
Capital
controls are installed by monetary authorities around the world to keep
foreign money from coming in, to keep their own currency from rising
too much.
“If we
want to be competitive and grow, we need to undervalue the peso. For me
inflation targeting is already secondary. There is a lot of debate about
inflation targeting, and that is now discredited,” Sta. Ana said.
“I
think presently they have already abandoned inflation targeting. Even
in the BSP charter, their real mandate is ‘price stability’ but now
their definition of inflation targeting has become rigid, it’s not
really in black and white. But all over the world inflation targeting is
no longer employed,” he said.
To
keep the peso undervalued, Sta. Ana said the BSP should print more
money to buy the dollars. The BSP has enough room to do that since
money-supply growth is only at 7 percent, way below the inflationary
threshold of 20 percent.
(InterAksyon)
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