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Manila Bulletin devider Business devider Banking & Finance devider Peso impact on inflation 'not very large' – Remolona

Peso impact on inflation 'not very large' – Remolona

Published Jun 27, 2024 09:14 am

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said the depreciated peso at the P58 level has a manageable effect on inflation which the BSP expects will peak in July and then taper off to below four percent for the rest of 2024.

“We’ve been watching the peso. We don’t want it to depreciate too sharply. We occasionally intervene,” he told reporters Thursday, June 27. The peso versus the US dollar was stronger at P58.75 on Thursday from P58.86 the day before. Year-to-date, the peso has depreciated by 5.7 percent.

Remolona said the peso depreciation and its effect on inflation “as we can best estimate is not very large.”

“We think the pass-through which is what we call the effect of depreciation to inflation – we estimate it at 0.036 percent per one percent depreciation of the peso. So the 5.7 percent (peso depreciation year-to-date) against 0.036 percent … that adds up to about 0.2 percent in inflation so it’s not a large pass-through,” said the BSP chief. 

The latest inflation which was for May stood at 3.9 percent. The resulting year-to-date average was 3.5 percent which is within the government target band of two percent to four percent.

Meanwhile, Remolona said they continue to be relatively active in the foreign exchange spot market.

“We’ve been active when we sense stress in the market. When the market becomes dysfunctional – in other words there’s only one side either selling or buying – then we come in on the other side. But mostly we come in to slow down the tendency of the peso to depreciate sharply. But we don’t come in everyday,” he said.

Remolona said earlier that they are ready to provide the necessary US dollar liquidity in the spot market if they find the peso is under stress and could go in the wrong direction.

As far as BSP intervention is concerned, he has said that the central bank does not intervene on a daily basis.

The BSP has always emphasized that it has a flexible and free-floating exchange rate policy, which means it is market-determined. However, it is prepared to participate in the exchange rate market to ensure orderly market conditions and to reduce excessive short term volatility.

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