New BSP chief downplays peso depreciation

Incoming Bangko Sentral ng Pilipinas Governor Felipe Medalla on Tuesday downplayed the depreciation of the peso saying remittances, exports and income from BPOs will help support the local currency, according to a report by ABS-CBN.

A day after the peso weakened to P55.15 to the dollar in intraday trading before recovering to P54.78, Medalla said nearly all currencies are depreciating against the greenback. 

“This is mainly due to the fact that the US monetary authority (the FED) has hiked its policy rate by 150 basis points (1.5 percent),” Medalla said. 

He also noted that Philippine imports have risen much more than its exports because the economy is recovering faster. Prices of imports, especially food and fuel, have also increased significantly, Medalla said. 

The dollar has also become more attractive as a safe haven asset for investors around the world because of the uncertainties generated by the Ukraine war, he said. 

Despite this, Medalla said the recovery in exports, remittances from overseas Filipinos, BPO receipts as well as foreign direct investments are likely to temper the “near-term pressures on the currency.”

“Equally important, the country’s gross international reserves continue to serve as an ample buffer against disorderly movements in the foreign exchange market,” Medalla said. 

He said the BSP will also “participate in the market to address excessive short-term volatility.”

“ As an inflation targeting central bank, the BSP will continue to focus on its objective of keeping inflation low and stable, and respond to exchange rate movements when they pose a risk to the BSP’s price stability mandate,” he added. 

The BSP has so far raised its benchmark rate by 50 basis points this year in a bid to tame inflation, which surged to 5.3 percent in May. 

During the height of the pandemic, the central bank reduced its policy rate to a record low 2 percent, and kept it there for almost 18 months to help prop up the economy.