The Philippine Peso’s depreciating value is “only temporary,” citing a larger regional trend of currencies falling versus the US dollar on the back of the Federal Reserve’s policy, a central banker said on Monday.
During a panel at the Philippine Economic Briefing, Bangko Sentral ng Pilipinas (BSP) Senior Assistant Governor Iluminada Sicat said that the central bank is still keeping an eye on the currency market but will let market forces set the peso’s value against the dollar.
The Philippine peso ended the start of trading week strong at P58.11 to US$1, up 8 centavos from P58.19 to $1 last Friday. But the local unit reached an 18-month low of P58.27 per dollar on May 21, 2024.
“This is only temporary. Once things clear up, it will be the fundamentals that will determine the exchange rate,” Sicat said.
According to Sicat, the central bank keeps an eye on the foreign exchange market and is prepared to take action, but it usually lets the market determine the amount of currency.
“We do not target any specific exchange rate level. We just let the market determine the level of the exchange rate and what we look at when we enter into the market is that we look at whether there is presence of market stress,” Sicat said.
“We also look at what’s happening around the area. Are we the only ones depreciating or not? If we let the market stress left unattended, this would affect inflation expectation and that is something we are avoiding,” Sicat added.
International Monetary Fund resident representative to the Philippines Ragnar Gudmundsson, for his part, said that central banks’ decisions “should be data dependent and driven by domestic considerations.”
“Foreign exchange flexibility should be taken as a first priority. It is the combination of foreign exchange flexibility with a credible inflation targeting regime that really matters to anchor investors,” Gudmundsson said.
“What is most important for the Philippines is really to address volatility caused by the Fed’s shifting stance,” Gudmundsson added. (TCSP)
