Central Bank Assures: Peso’s Decline Only a Short-Term Trend

The recent decline in the Philippine peso is only a temporary situation influenced by overseas developments, particularly the stance of the Federal Reserve, according to Iluminada Sicat, Senior Assistant Governor of the Bangko Sentral ng Pilipinas (BSP). Speaking at the Philippine Economic Briefing, Sicat emphasized that the central bank is actively monitoring currency market developments and expects fundamentals to eventually determine the exchange rate.

“I think this is only temporary and eventually, once things clear up, it will be the fundamental that will determine the level of exchange rate,” Sicat stated in Pasay City. On Monday, the peso appreciated to P58.11 to US$1 from last Friday’s P58.19:$1, recovering slightly after hitting an 18-month low of P58.27:$1 on May 21, 2024.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael Ricafort attributed the peso’s recent appreciation to the BSP’s signals of potential market intervention to curb excessive volatility. “The US dollar/peso exchange rate corrected slightly lower… amid reiterated signals on possible intervention should there be excessive volatility and to bring greater order in the foreign exchange market,” Ricafort noted.

Sicat reaffirmed that the BSP generally allows the market to determine the foreign exchange rate but remains vigilant to intervene during periods of market stress to avoid adverse effects on inflation expectations. “We do not target any specific exchange rate level. We just let the market determine the level of the exchange rate and what we look at when we enter into the market is that we look at whether there is presence of market stress,” Sicat explained.

She added that the BSP’s intervention is based on market stress indicators and comparative regional performance, considering the broader impact of the Federal Reserve’s current position. “If we let the market stress be left unattended, it would affect inflation expectations and that’s something we are avoiding. We look at market stress, we consider fundamentals, and we also look at what’s happening around the area — are we the only ones depreciating or not, given the fact that all of us are being affected by the current position of the Federal Reserve,” she said.

In summary, the BSP remains committed to monitoring and managing the currency market to ensure stability, emphasizing that the recent peso weakness is a transient phase influenced by international monetary policies.