Peso weakness not likely to affect inflation – BSP
The peso’s current weakness is not likely to significantly impact on inflation, a Bangko Sentral ng Pilipinas official said.
This is foreseen as the pass-through rate of the foreign e change movement to inflation has declined over the years and the country’s macroeconomic fundamentals remain sound, BSP eputy overnor iwa . uinigundo said.
The e change rate pass-through has declined over the years. think right now, for every one percent depreciation, the impact is about 0.06 percent (on inflation),” uinigundo said.
Thus, inflation has remained benign despite the weakening of the peso since ay, when the S ederal eserve announced a possible scaling back of its bond- buying program. The ed’s impending tapering is putting an upward pressure on the greenback as investors scramble to put back funds in the improving S economy.
The peso weakend to an almost threeyear low last Thursday when it closed at 44. 5 to a dollar. The local currency was dragged down by investors secondguessing the timing of the ed’s tapering and by geopolitical risks in Syria.
part from the declining pass-through rate of the peso’s depreciation to inflation, uinigundo pointed out that sound macroeconomic fundamentals should temper any upside risks to the rise in consumer prices.
The fact that we have appropriate level of monetary aggregates in the economy, that supply conditions have been broadly favorable, and the economy continues to grow these are more than enough to upset potential inflationary pressures that a relatively weak peso might imply,” uinigundo stressed.
hile the peso has a weakening bias, this is more temporary than permanent. f you look at the fundamentals that is driving the e change rate, they all point out to the north rather than to the south.”
The peso finished at 44.605 per dollar on riday, partly recovering after the country’s sia-leading . 5- percent second- uarter economic growth was announced.
uinigundo noted that the peso has averaged 4 .50 to a dollar since the start of the year, well-within the full-year assumption of 4 to 4 .
milio eri r., lead economist at the Bank of the Philippine slands, said the peso’s movement against the dollar this year will be partly reliant on the Syria conflict as the iddle ast serves as a second home to a big number of overseas ilipino workers.
The new factor that becomes part of the e uation of the e change rate and the inflation is the Syrian conflict,” he said.
The iddle ast is the second biggest contributor of remittances to the Philippines so when something happens there, we’re affected,” he continued.
eri stressed that the local markets will be watching how the Syrian conflict unfolds as sentiment may turn unfavorable despite the country’s sound macroeconomic fundamentals.
ven if fundamentals remain intact, if there’s uncertainty about our dollars coming from the iddle ast... then we’re going to have this kind of volatility in the market,” eri said.