The peso closed weaker at P55.22 vis-à-vis the US dollar on Wednesday, April 12 from P54.93 the day before in reaction to the central bank’s possible pause of its year-long rate hikes on May 18. Some banks attributed the peso depreciation to a looming reversal of the Bangko Sentral ng Pilipinas’ (BSP) hawkish monetary policy stance. Since May 19, 2022, the BSP has been raising the key rate by a cumulative 425 basis points (bps) to 6.25 percent by March 23 to battle high inflation and to temper peso-US dollar volatility. On Wednesday, the spot market opened at P55.05 and hit its weakest level at P55.24. Meantime, the peso’s weighted average rate was at P55.101 from P54.734 previously. Based on Bankers Association of the Philippines data, the total exchange rate volume reached $935.98 million compared to $1.143 billion on April 11. BSP Governor Felipe M. Medalla has earlier expressed confidence that the previous threat of inflation expectations being disanchored is now lesser than it used to be when the peso was fast depreciating in June to October 2022. It even hit its record lowest of P59 in September and October last year. To ensure inflation rate will be within the government target range two percent to four percent by end-2023, the BSP again raised the benchmark overnight rate by 25 bps on March 23 to 6.25 percent. The BSP also adjusted lower its average rate forecast for inflation to six percent from 6.1 percent (Feb. 16 monetary policy meeting). For 2024, the projection is 2.9 percent, also lower from the previous 3.1 percent. As of March, the inflation rate stood at 7.6 percent, down from 8.6 percent in February. The first quarter inflation average is at 8.3 percent. Medalla said that if the April inflation will also show a negative trend, this could convince the BSP to veer away from its tightening cycle. Meanwhile, the BSP chief said he is not worried if the peso-US dollar spot market has some volatility. For some months, the peso has been trading between P54 to P55. “We make sure people get used to volatility so that’s why we allowed the exchange rate to be a shock absorber. We all know the exchange rate can overshoot and this is where our reserves come in handy. If we think that it’s overshooting, then that’s the time we sell. And fortunately, that strategy is not only good, it’s profitable for us because all our debts are in pesos and all our assets are in foreign exchange,” said Medalla. Last year, the BSP sold around $15 billion of its reserved US dollar to ease exchange rate pressures.