The monetary authorities assure that the market-determined exchange rate policy is still good for the Philippine peso despite its depreciation.
So far, the peso is trading at 56 per dollar, a far cry from the 53 level at the start of the year.
The local unit has fallen about 10 percent against the dollar since the start of the year, but authorities said that performance is still in the middle compared to its peers in the region.
President Ferdinand “Bong-bong” Marcos Jr. had earlier said that the rise in domestic inflation was mainly due to imported inflation, citing the impact of higher oil prices, among other things.
Hence the need to help tame the faster rate of inflation with the help of monetary policy adjustments.
“Our monetary policy at the moment is mainly to use [the] Interest rate to hold and control [of the] Inflation rate. “We are not looking specifically at the exchange rate now,” he said at a previous news conference in Malacanang.
The National Authority for Economics and Development said that the 7.5 percent depreciation of the peso since the Federal Reserve (Fed) announced its first interest rate hike by 0.25 percentage point on March 16 is broadly comparable to that of the Thai baht (9.1 percent), Malaysian Ringgit. (5.8 percent) and the Indonesian rupiah (4.6 percent).
Although the domestic unit is currently trading at 56 against the US dollar so far, authorities said its average for this year is still within this year’s Inter-Agency Development Budget Coordination Committee’s foreign currency assumptions of between 51 and 53.
Felipe Medala, Governor of Bangkok Central, Bilibina. TMT FILE PHOTO
Bangko Sentral ng Pilipinas (BSP) Governor Philip Medala has tracked the current peso weakness to the strengthening of the US dollar, buoyed in part by the continued increase in the federal funds rate.
It thus raised the need to be “on his toes” with regard to policy rate adjustments versus the central bank’s mandate for price stability and the need to help address the impact of higher inflation. Key BSP rates have been raised by a total of 150 basis points so far – 25 basis points last May, 50 basis points last June and 75 basis points off-cycle by 75 basis points last July 14.
This raised the central bank’s overnight reverse repo rate to 3.25%, the overnight deposit rate to 2.75% and the overnight repo rate to 3.75%.
Meddala said that the continued recovery of the local economy gives the monetary policy board room to raise the main interest rates of the central bank because it can absorb the impact of price adjustments.
He stressed that “it is not wise to let the factors that greatly affect the exchange rate increase inflation.” [is] Really high.”
“Because of this, the Fed is willing to be more aggressive in raising its policy rates, compared to its initial gradual stance,” he said.
The rate of price increases in the country accelerated to 6.1 percent in June from 5.4 percent in the previous month.
Inflation in the first half of the year averaged 4.4 percent, already above the government’s target range of 2 to 4 percent.
GNP expects inflation to average 5 percent this year. Inflation exceeded the government’s target range last April due to the rise in international oil prices and supply restrictions on some foodstuffs.
Monetary authorities have repeatedly supported the implementation of non-monetary measures to help address the impact of higher inflation on domestic prices as higher inflation is primarily due to supply side factors.