Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said the peso at P57 vis-à-vis the US dollar is not weak per se, as it is only adjusting to market forces.
Remolona on Wednesday, April 17, tried to calm markets by saying that “it’s not a case of the weak peso, it’s the case of a strong dollar.”
“Unless the movements are very sharp, we tend to allow the adjustment to happen,” he said in a press briefing.
The peso versus the greenback closed for the second day at the P57 level. It ended Wednesday with P57.18, depreciating further from Tuesday’s P57. The local currency’s weakest level was at P57.333 during the spot market trading on April 17.
Meanwhile, the exchange rate’s volume increased to $1.922 billion from $1.100 billion last Tuesday.
Remolona said since the BSP has a policy of a market-determined exchange rate, they think the peso is only adapting to what the market dictates.
“I wouldn’t say it’s performing poorly,” he said.
“It’s adjusting to some events … along with other emerging market currencies because of what’s going on in the Middle East. And then more recently, I guess today, it is adjusting to the news – to Powell’s speech that maybe they won’t ease until September or September is how people interpret what Powell said. There’s a postponement of when FOMC (Federal Open Market Committee) will ease in the eyes of the market. So that meant weakening of other currencies against the US dollar,” added Remolona.
He’s referring to US Federal Reserve Chair Jerome Powell and the Israel-Iran conflict that affected exchange rate trading of the past days.
On the FOMC, Remolona said he did not think it will adjust its interest rates sooner.
“To be honest, I never thought FOMC will adjust sooner (than expected). I think the markets overeacted. The markets were over optimistic about when the FOMC will ease. So now, I think they get the message that the easing will not happen until maybe late in the third quarter,” he said.
He also said that the “US inflation rate has remained very stubborn. It’s stubbornly high whereas our inflation has also been stubborn but not as stubborn as the US.”
In the same press briefing, Remolona said the BSP itself is considering a rate cut this year, possibly in the fourth quarter. The latest will be in the first quarter of 2025.
The central bank tries to maintain an interest rate differential of 100 basis points (bps) to 150 bps between the FOMC rate and the BSP rate to remove volatility pressures from the exchange rate spot market. At the moment, the BSP key rate is at 6.5 percent.
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.