The Bangko Sentral ng Pilipinas (BSP) is prepared to protect the peso as it drops to its lowest level in 17 months due to the strengthening US dollar, according to the BSP Governor.
In a statement released on Thursday, Governor Eli Remolona Jr. clarified that the recent decline in the peso was more a result of the robust dollar rather than weakness in the peso. This shift is attributed to geopolitical tensions and changing perceptions about rate cuts in the United States, prompting a capital flight to safety.
Despite this, Remolona reassured that the BSP is closely monitoring the situation and is ready to address any excessive movement and volatility in the market.
The last time the BSP intervened by selling dollars from the country’s reserves to support the peso was in the previous year when it reached the critical 57-level. The peso has once again entered this territory, closing Friday’s trading at 57.71 after a turbulent week, marking its weakest performance since November 2022.
Remolona mentioned that the central bank has not been actively intervening in the foreign exchange market recently. The peso has been trading above the 55 to 57 range assumed by the Marcos administration for this year.
It remains uncertain at what level the BSP would step in to stabilize the volatility and prevent the peso from driving up import costs and inflation.
Apart from forex interventions, the BSP’s interest rate hikes aimed at curbing inflation could also help bolster the peso by making domestic yields more appealing to investment inflows.
Remolona emphasized that the recent peso depreciation is unlikely to prompt any immediate policy actions from the BSP, which has maintained its key rate at 6.5%, the highest in almost 17 years. However, he acknowledged that the room to ease monetary policy has narrowed and hinted at a possible rate cut in the first quarter of 2025 if inflation rises significantly.
Analysts at First Metro Investment Corp. and the University of Asia and the Pacific predicted that the peso would face continued pressure to depreciate throughout the year, citing large importations for infrastructure projects and rice imports that maintain trade deficits at elevated levels.
