The Bangko Sentral ng Pilipinas will not allow excessive changes in the peso-dollar exchange, Governor Felipe Medalla said over the weekend.
Medalla confirmed during the annual reception for the banking community the BSP was “very active” in the foreign exchange market.
Medalla’s statement came a few days after he asked individuals “who have the means” to avoid taking advantage of the trend in the foreign exchange market, saying this activity would not benefit the local currency.
“We will not allow excessive changes in the exchange rate…,” he said. “There are so many other things happening right now. It is very fluid, but we hope the dollar will weaken. I can’t tell you what we are doing,” he said.
Data showed the country’s gross international reserves settled at $95.0 billion as of end-September, down from $97.4 billion in August, which economists linked to the BSP’s intervention in the currency market.
The peso fell to a new all-time low of 59 per dollar on Oct. 3 as the greenback gained general strength amid the financial markets’ expectation of another huge rate increase by the US Federal Reserve next month. The peso closed at 58.92 on Friday, weaker than 58.653 on Thursday.
The BSP had said it was taking steps to manage any disruption in the financial market and reaffirmed its committment to enhancing the well-being of Filipinos through a financial system that addresses the funding needs of the public while managing risks.
It said market conditions around the world were challenging, and working together would sustain the functioning financial market while appropriately managing the developing risks.
Medalla said the BSP was not expected to move in sync with any further policy action by the US Federal Reserve next month. He said there was no need to match Fed’s actions point by point.
“Our response would depend on the data… How big the response is depends on the data,” Medalla said.
He assured that there would be no more off-cycle move by the BSP for the rest of the year. The Monetary Board surprised the market on July 14, 2022 by raising the benchmark policy interest rate by 75 basis points to 3.25 percent, to rein in inflation and support the peso against the US dollar.
The board raised the benchmark policy interest rate by another 50 basis points on Sept. 22 to 4.25 percent, following an earlier 75-basis point hike by the US Federal Reserve to tame the persistently high inflation in the world’s biggest economy.
This brought the BSP’s total rate increase this year by 2.25 percent to 4.25 percent from a record low of 2 percent at the start of the year. The BSP maintained the 2 percent interest rate in 2021 to support the economy’s recovery from the pandemic.
Medalla said the economy was expected to “do well’ despite the headwinds, particularly those coming from external fronts, such as the continuing conflict in Eastern Europe, rising interest rates and elevated inflation rate.
The economy grew by 5.7 percent in 2021 after a sharp 9.6-percent GDP contraction in 2020 at the height of the pandemic. It posted an average growth of 7.8 percent in the first half this year.
“Of course, we could say that we’re coming from a very low base. But at this rate, by this quarter, we would have already recovered pre-pandemic levels of GDP,” Medalla said.
“Now, of course, we are facing very difficult challenges. Nobody, six months ago, would have predicted that the US Fed will be raising policy rates this aggressively. After all, during those times, the Fed was saying, ‘Inflation is transitory. Inflation is not going to be very high.’ It turns out, this outlook was wrong,” he said.
Medalla said the Ukraine war also caused an increase in the prices of the country’s main imports. This led to a current account deficit that was expected to reach $20 billion this year, wider than last year’s $5-billion shortfall.
