IMF says no need to intervene in peso appreciation

Calls for government intervention to limit the strength of the Philippine peso has been rejected by the International Monetary Fund (IMF), saying this might have pose some serious repercussions.

IMF Manila representative Dennis Botman said on Monday that such support will require policymakers to do "undesirable" things and will cast doubt on the credibility of the local central bank whose inflation-targeting framework had helped insulate the Philippines from the global economic downturn.

"You must not forget we just came out of a deep global recession and because of the credibility of the monetary policy framework of the Philippines, (the country) was able to reduce interest rates and support the economy at a time when it needed it most," Botman said.

The idea of the government intervening on the appreciation of the local currency to help the export sector maintain a competitive edge has been floated by certain groups, among which is Philippine economist and former Philippine Budget Secretary Benjamin Diokno.

Diokno wants the central bank to prevent the peso from getting any stronger than 55 pesos per dollar, sharply weaker than average rate of 45.31 pesos per dollar set on Friday or before the local currency market went on an extended Election Day weekend.

Botman explained that a number of factors affect the exchange rate such as the level of public debt service and keeping the peso weak would only stoke inflation "and that by itself would undermine exporter competitiveness."

An artificial peg would also have implications on interest rates, affect the ability of businesses to finance their operations and require the local central bank to put up capital controls or abandon the inflation-targeting framework first adopted in 2002, he said.

Source:Xinhua