With the peso weakening to an 18-month low of P51:$1 on Monday, central bank officials said both businesses and consumers’ expectations that the local currency will depreciate further in the fourth quarter and in the next 12 months are broadly aligned with their own exchange rate assumptions.

“Looking at the trend, the expectations seem rational given the fact that there has been an increasing (or) improvement in global demand not only abroad but also here (and) we can already see some economic activity building up and therefore there will be some demand for imports and hence this will have an impact in terms of requiring foreign exchange,” according to BSP Senior Assistant Governor Iluminada T. Sicat.

The peso vis-à-vis the US dollar on Monday, Sept. 27, closed at its high of P51 from Friday's close of P50.65. The last time the peso was at the P51 level was March 27, 2020.

Sicat also cited the increase in prices of crude oil which she noted has been rising recently because of the improvement in global activity – “so this in turn will have an impact on the direction of the exchange rate.”

BSP officials, including Deputy Governor Francisco G. Dakila Jr. and Department of Economic Statistics Senior Director Redentor Paolo M. Alegre Jr. said the BSP will however always let the market determine the level of the exchange rate.

Dakila noted the exchange rate assumptions of P48 to P53 until 2024 as approved by the inter-agency Development Budget Coordination Committee (DBCC).

“Our expectations are in line with the DBCC since we provided the inputs and this is deliberately wide to reflect the fact that the peso-dollar rate is determined by the market,” said Dakila. “This is a forecast, not a target for the exchange rate,” he added.

Sicat said the BSP allows the market to dictate the level of exchange rate based on market fundamentals and on the demand and the supply of US dollars. “So, in that respect, looking at the trend of the expectaton of the market at least until the next quarter, I think the expectation is the same (between BSP and the market),” she said.

BSP Governor Benjamin E. Diokno last week reiterated that despite recent pressure on the peso, the foreign exchange market will remain stable. He said the BSP’s policy of a flexible exchange rate “helps protect the peso against speculative attacks.”

The recent peso depreciation is mainly due to the US dollar strength as investors were on a risk-off sentiment with COVID-19 Delta variant new cases and US Federal Reserve’s impending policy normalization.

Diokno also said the peso will not break P53 despite the US Fed’s hawkish assertions. He’s even hinted that before that happens, the BSP will “use its wide range of monetary policy tools to deal with any short-term volatility, including foreign exchange market participation”.