THE PESO may continue to depreciate further this year amid broad dollar strength, but the Philippine central bank may not need to intervene yet, analysts said.
“The peso’s recent depreciation is a concern, but it’s part of a larger global trend,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. on Thursday said that the local currency’s recent performance has been due to the US dollar’s strength rather than the peso’s weakness.
He cited escalating tensions from the Middle East that led to “safe haven flows into the US dollar at the expense of most other currencies.”
The local unit closed at P57.71 against the dollar on Friday, strengthening by seven centavos from its P57.78 finish on Thursday. Its close on Thursday was its weakest finish in more than 17 months or since the P58.19 close on Nov. 10, 2022.
Year to date, the local unit depreciated by P2.34 from its P55.37 finish on Dec. 29, 2023.
“We already predicted last year that the peso-dollar exchange rate would reach P58 in 2024,” De La Salle University School of Economics professor Jesus Felipe said in an e-mail.
Mr. Felipe said that the peso will likely stay in the P57-to-P58 range this year.
Latest Development Budget Coordination Committee assumptions show that the peso may range from P55 to P57 for 2024.
The exchange rate is also directly affected by the current account balance, ratio of Philippine export prices to world import prices and the current policy rate, Mr. Felipe said.
Ateneo de Manila economics professor Leonardo A. Lanzona said the US dollar’s recent strength is also due to the strong performance of the US economy.
“Unless the Philippine economy matches with the US economic growth, the value of the peso will continue to decline. Now, this is not necessarily bad for the economy because it incentivizes greater exports,” he said in an e-mail.
INTERVENTION?
Mr. Remolona has said that the central bank “stands ready” to defend the currency if needed, after the peso closed at its weakest level in nearly 17 months against the dollar on Thursday.
“Nonetheless, the BSP continues to monitor the market and stands ready to manage any unnecessary movement and excessive volatility,” he said on Thursday evening.
In October 2022, the peso reached a record low of P59 against the dollar. This added to inflationary pressures and prompted the BSP to intervene in the foreign exchange (forex) market and raised interest rates.
Mr. Remolona also said that the BSP allows adjustments to happen unless the forex movements are “very sharp.”
Enrico P. Villanueva, a senior lecturer at the University of the Philippines Los Baños Economics Department, said that the BSP is correct to allow forex adjustments to happen.
“It is BSP’s mandate to ensure financial stability, but not dictate or control the level of the exchange rate of peso against dollar,” he said via Facebook Messenger.
Mr. Felipe also noted that the BSP is unlikely to intervene. “Not at this level and as long as movements are very smooth,” he added.
The BSP would intervene if necessary to maintain stability, Mr. Roces said.
“Although, what these interventions are remain vague, based on the recent gross international reserves (GIR) we have ample external cover for this,” he said.
“As such, recent movements have been market driven and there aren’t any inherent weakness in the peso. The main catalyst has been the signal out of the US Fed about the need to maintain elevated rates for longer, and likely a knee-jerk reaction regionally following Indonesia’s surprise rate hike,” he added.
Policy makers at the US Federal Reserve have signaled that they are not rushing to cut rates anytime soon due to persistent inflation.
The Fed is set to have its next meeting this week (April 30-May 1).
Mr. Remolona earlier said that the peso’s recent drop has been due to signals of policy easing delays by the Fed. He also said that the peso weakness is unlikely to impact the BSP’s monetary decisions.
Finance Secretary Ralph G. Recto also said last week that the peso depreciation is not enough reason to raise rates.
From May 2022 to October, the Monetary Board has hiked borrowing costs by 450 basis points to bring the benchmark rate to a near 17-year high of 6.5%. At its April meeting, the BSP stood pat for a fourth straight meeting.
The Monetary Board is set to have its next policy meeting on May 16. — Luisa Maria Jacinta C. Jocson