The central bank might have to intervene in the foreign exchange market and lower the official target for its budget deficit this year due to the Supreme Court's order to suspend the implementation of the expanded value added tax (EVAT) law, a government official said Monday.

Finance Secretary Cesar Purisima told reporters that the Supreme Court's suspension was indeed a setback to President Gloria Macapagal-Arroyo's fiscal reform program and thus the negative reaction of the peso and the market was expected.

The government would just work doubly hard to offset the losses in revenues from the EVAT, he said.

Purisima and newly-installed central bank Governor Amando Tetangco Jr. vowed not to be distracted by politics and continue to work on the improvement of country's fiscal condition.

"We are closely watching the market now. This is something that we have to deal with as far as the central bank is concerned, the main objective really is try and maintain stability. In the foreign exchange market, our policy is to let the market basically determine the exchange rate but we would also like to see less volatility," Tetangco said.

"In other words we would allow the rate to adjust to market forces but we think that if the fluctuations are too sharp, then there is (possibility) for the central bank to participate in the market," he said.

Purisima said that the changes in fiscal target would depend on how long the Supreme Court's temporary restraining order would drag on.

Tetangco said that the market had monitored the EVAT from the start and reacted positively when it was passed.

"The passage of the EVAT was a source of optimism earlier on that the Philippines is on the way of addressing the fiscal deficit problem in a decisive way, that's why there was an improvement in the market sentiment when discussions (on the EVAT) began and then it further improved when the law was finally passed, " he said.

The central bank governor urged a quick resolution to the suspension case before the Supreme Court in order to appease the market and the investors along with analysts and credit rating agencies.

Purisima estimated that the potential loss for everyday of delay of the EVAT law implementation at about 15 to 160 million pesos or approximately 4 to 5 billion pesos a month.

"So that's why we hope we can file (motion for reconsideration) today so that the Supreme Court can consider (it)," Purisima said.

The high tribunal issued the suspension order on Friday, the first day of the EVAT implementation as opposition lawmakers questioned the standby authority granted to President Gloria Macapagal-Arroyo to raise the EVAT rate from 10 to 12 percent.

Source: Xinhua