BSP Moves To Rescue Peso
Updated: Oct 14
In a desperate move to curb the peso’s excessive volatility and stem its depreciation via-vis the US dollar, the Bangko Sentral ng Pilipinas (BSP) has begun to actively trade in the foreign exchange market.
Photo Insert: BSP Governor Felipe Medalla
BSP Governor Felipe Medalla also said on Friday the monetary authority has raised the policy rate by a total of 2.25 percentage points to temper inflation.
Medalla said on Friday the BSP considers the exchange rate to the extent that it aggravates imported inflation, and any response to Federal Reserve depends on how much the latter would hike.
“We will not allow excessive changes in the exchange rate,” the governor said. “We, of course, sell strategically. It’s wiser to keep your powder dry and shoot later.”
He had earlier explained plans to increase the central bank’s debt issuance were designed to trim the supply of peso liquidity that can be used to buy more dollars in the market, saying it’s a “more permanent form of sterilization.”
The central bank has been conducting some swaps and other market operations, as well as selling dollar forwards, he said, adding that “higher interest rates, intervention in the currency market, and sterilization should be sufficient to cushion the economy against risks.
“I am confident that by selecting the correct combination of these three measures, we will be able to navigate,” the BSP official said as he urged the public to keep foreign currency transactions within the banking system, warning that doing otherwise will widen the differential between the official spot rate and the gray market.”
The peso’s slump to a record low has eroded the Philippines’ international reserves to the lowest level in two years in August. The central bank is scheduled to report the September data soon.
Asked whether or not the central bank would continue to be active in the currency market in the coming months, Medalla said: “It depends because there are so many other things that are happening outside the Philippines that are actually causing the dollar to weaken.”