Philippine Peso Hits ₱52-level Versus the US Dollar

As the Russia-Ukraine conflict persists it also continues to have a significant effect on foreign exchange rates and currency volatility. On Monday, the Philippine peso dropped to ₱52.1 opposite the US dollar marking a 30-month low. The last time the peso fell to the ₱52 barrier was on September 26, 2019, when it closed at ₱52.11.

Prior to Russia’s invasion of Ukraine on February 24, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno noted that it would be highly unlikely for the peso to veer away from inflation expectations. It was projected that its inflation would remain manageable for the next two years.

However, since the conflict began, the BSP has added this particular problem to its current concerns regarding the increase in market volatilities as interest rate hikes in the US and other advanced economies loom. This circumstance could possibly prompt the reversal of capital flows and the depreciation of the local currency.

The government has been recommended to assume a peso-US dollar rate of ₱48 to ₱53 to be maintained from 2022 to 2024 in line with the anticipated gradual normalization of the monetary policy of the US. On March 6, Diokno affirmed that the ongoing conflict’s effect on the foreign exchange rate is muted, adding that the trading between the peso and US dollar remains fairly stable with a “slight depreciation pressure.”

“The BSP views such development as a result of the impact of the geopolitical tensions on oil prices, which likewise affected the peso,” explained Diokno. “But this is in line with the behavior of other currencies in the region which also depreciated against the US dollar. It should be noted, however, that the Philippines has more than adequate level of foreign exchange reserves to temper any volatility in the exchange rate market.”

Diokno furthered that structural inflows sourced from overseas Filipino remittances, receipts from business process outsourcing, and foreign direct investments heavily support the Philippines’ external sector. These sources have likewise showcased resilience throughout the course of the prolonged global pandemic. “In addition, the BSP has various liquidity-enhancing tools that can be deployed in case the domestic liquidity situation becomes unexpectedly tight or disorderly including actions adopted during previous crises episodes,” he added.

The depreciating peso is not necessarily a concern in terms of the inflation path, assured BSP Deputy Governor Francisco Dakila Jr. last month. Especially following the BSP’s adoption of its inflation targeting scheme which has lowered the pass-through rate to inflation — a measure of how domestic prices respond to changes in the exchange rate.

Source: Manila Bulletin