Central bank governor unfazed by peso slump

Impact on monetary policy is not large, says official

“It might be a factor, depending on what happens between now and the next monetary policy meeting, but the adjustment so far is not going to change what we think we might be doing.” Eli Remolona Jr

MANILA: The recent weakness of the peso is “not large enough” to upset inflation expectations and trigger any policy actions from the Bangko Sentral ng Pilipinas (BSP), governor Eli Remolona Jr says.

At a press conference on Wednesday, Remolona said the local currency’s slump was “not a case of a weak peso, (but) a case of a strong US dollar” as the greenback regained strength amid heightened tensions in the Middle East and increasing bets on a delayed easing by the US Federal Reserve.

On Wednesday, the peso sank deeper into the 57-level, closing at 57.18 against the US dollar, from its previous closing of 57.

This was the currency’s worst performance since November 2022.

“The magnitude of the adjustment of the peso has not been large enough to affect inflation expectations. So, for now, I think the impact on monetary policy is, I would say, not large,” the BSP chief said.

“It might be a factor, depending on what happens between now and the next monetary policy meeting, but the adjustment so far is not going to change what we think we might be doing,” he added.

The 57-to-us$1 level was a critical barrier for the BSP, which moved to defend the peso when it touched that level last year.

But Remolona said in a Bloomberg interview that the central bank “has hardly been intervening” in the foreign-currency market recently.

The BSP chief also said he was comfortable with how the peso had been behaving, although he admitted that tensions in the South China Sea had also been hurting the currency “a bit”.

“I wouldn’t say it’s performing poorly. I would say it’s adjusting to some events, initially weakened along with other emerging market currencies,” he said.

So far, the peso has been hovering above the revised assumption of the Marcos administration, which currently projects the peso to trade between 55 and 57 against the greenback this year.

BMI Country Risk & Industry Research, a unit of the Fitch Group, said it forecasts the peso to average at 56-per-us dollar in 2024, although rate expectations in the United States would likely put pressure on the currency in the short term.

“Admittedly, the peso defied our expectations for an appreciation in the first quarter of 2024. But this was largely due to the volatility led by the many uncertainties surrounding the magnitude and timing of rate cuts in the United States,” BMI said in a report.

“A clearer picture will emerge once these factors subside,” it added.

A sharp and sustained peso depreciation could stoke inflation and bring headaches for the BSP, which has so far kept its key rate unchanged at 6.5%, the tightest in nearly 17 years.

At present, Remolona said the “central scenario” for the BSP was that it may cut rates in the fourth quarter of 2024, as he also does not expect the Fed to “adjust sooner than what we now think.”

“Our inflation rate has also been stubborn, but not as stubborn as that of the United States,” he said.

“So we have plenty of time. I would say the central scenario would be fourth quarter ease. If things are worse than we think, that might be postponed to the first quarter of 2025.” — Philippine Daily Inquirer/ann