BSP: Peso weakening ‘expected’ over US Fed rate hikes, global risks

By Pilar Manuel, CNN Philippines

Published Sep 22, 2022 8:49:17 PM

Metro Manila (CNN Philippines, September 22) — The Bangko Sentral ng Pilipinas (BSP) allayed worries over the peso’s freefall against the dollar on Thursday, emphasizing the local currency’s depreciation stems from the greenback’s strength.

“The current movement of the peso is expected as it largely reflects the strengthening of the dollar given the monetary policy tightening cycle of the US Fed. Now, concerns over the Ukraine-Russia conflict and its protracted impact on global supply chains, global growth uncertainty, and elevated global inflation also continue to drive investors towards the US dollar as a safe haven asset,” BSP Deputy Governor Francisco Dakila Jr. said in a virtual briefing.

The local currency set a new all-time low on Thursday, closing at ₱58.49 against the dollar. This breached the previous record close of ₱58 posted just a day ago.

Dakila stressed such foreign exchange pressures aren’t unique to the peso, citing the “pronounced weakening” among the region’s currencies.

Economists have attributed this to the greenback’s strength, amplified by the US Federal Reserve’s aggressive actions against inflation. The Fed hiked rates by 75 basis points or three-quarters of a percentage point for the third time early Thursday (Manila time).

“As an inflation-targeting central bank, the BSP will respond to foreign exchange fluctuations to the extent that they pose a risk to the inflation outlook,” Dakila said.

The BSP hiked its key interest rate by another 50 basis points or half a percentage point on Thursday to 4.25%, a level last seen in August 2019.

“We believe today’s rate hike will help us achieve our price stability objective. This adjustment shall help alleviate some pressures of the peso which could in turn temper inflationary impulses stemming from elevated global commodity prices,” the BSP official explained.

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