Peso weakness won’t affect policy – BSP chief
The depreciation of the local currency to a near 17-month low is not large enough to affect inflation expectations, which may lead to rate cuts later this year or early next year, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said.
“I would say the central expected or inflation expectations scenario would be we ease in increase. the fourth quarter. If things “When we see that the are worse than we think, we markets and the households might postpone it to the first begin to believe that inflation quarter of 2025,” Remolona will surge, then we have to told reporters in a press consider a rate hike. But otherwise, briefing. we’re tight now. At
He noted that the peso is 6.50 percent, it’s already tight. not performing poorly as the It’s already doing its work,” markets are adjusting more to he said. current developments, including The central bank has kept tensions in the Middle East its benchmark rate steady at and hawkish comments from a near 17-year high of 6.50 the US Federal Reserve. percent for a fourth straight
“It’s not a case of a weak meeting in April. peso, it’s a case of a strong dollar. The BSP’s Monetary Board Unless the movements are raised borrowing costs by 450 very sharp, we tend to allow basis points from May 2022 to the adjustment to happen,” October 2023 to tame inflation Remolona said. and stabilize the peso.
The Philippine peso lost The next rate-setting meeting 19.2 centavos to breach the of the Monetary Board is 57 to $1 level on Tuesday, its scheduled on May 16. weakest finish in nearly 17 BMI Country Risk & Industry months or since it closed at Research sees the peso 57.375 to $1 on Nov. 22, 2022. depreciating further against
“The magnitude of the the dollar in the short term adjustment of the peso has amid increased volatility in not been large enough to afthe foreign exchange markets. fect inflation expectations. So, “However, we believe that for now, I think the impact on all these will likely fade once monetary policy is not large,” market expectations stabilize he said. and the Fed embarks on its
Asked if the BSP wouldndfirst cut,” it said. “This means consider a rate hike this year, that the Philippine peso will the BSP chief said another rate remain somewhat stable at hike is not possible unless in56.50 to $1.” flation accelerates faster than But in the long term, rising inflation and large current account deficits may constrain the peso’s appreciation against the greenback.
“We think that the depreciatory trend will remain intact and weaken to 57.20 to $1 by end-2025 on the back of poor fundamentals,” BMI added.
According to the research firm, higher inflation in the Philippines compared to the US may hinder the local unit’s appreciation versus the dollar.
“Over the next five years, we expect inflation to average approximately 2.5 percent in the US, while our forecasts suggest an average inflation of 3.9 percent in the Philippines,” it said.
Headline inflation accelerated for the second straight month to 3.7 percent in March from 3.4 percent in February.
From January to March, inflation averaged 3.3 percent, within the BSP’s target range of two to four percent.
Meanwhile, an increase in foreign direct investments may support the peso, as major central banks including the US Fed will likely begin to ease policy in the second half of the year.