BSP allows peso to depreciate via ‘delicate act’
The Bangko Sentral ng Pilipinas (BSP) is doing a balancing act and allowing the peso to depreciate, a foundation official stated on Friday.
“What the BSP is now doing is a balancing act. Given fragile economic recovery, it does not want to completely lose autonomy by matching the outsized US Fed rate hikes.
Hence, it is allowing the peso to depreciate,” Romeo Bernardo, Foundation for Economic Freedom vice-chairperson, said during the FEF press conference.
“On the other hand, it also does not want the peso to depreciate too fast because it could feed negative sentiments and raise financial market stress and/or in the current environment of imported inflation, lead to unanchored inflation expectations,” Bernardo added.
The peso broke through the 56:$1 level on 7 July, closing at 56.06 against the United States dollar and losing more than three pesos to the greenback in 19 days of trading.
This was the peso’s weakest in nearly 17 years since the local currency closed trading at 56.295:$1 on 27 September 2005.
Meanwhile, the peso closed at 55.90 on Friday.
“So, as BSP Governor (Felipe) Medalla said, if the exchange rate ‘overshoots’ too much and it becomes too costly for the BSP to manage through direct dollar sales and non-deliverable forwards, then it will have to raise interest rates more than it would have otherwise,” Bernardo added.
“A global recession will hurt the country, but perhaps not so bad. We are less dependent on exports against our peers and more on OFW (overseas Filipino workers) remittances which have been resilient in past global slowdowns,” he added.
Source: Daily Tribune