MANILA -- The latest increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates is expected to help address the peso’s depreciation but a monetary official said they do not target a level for the local currency.
“This adjustment shall help alleviate some pressures on the peso, which could, in turn, temper inflationary impulses stemming from elevated global commodity prices,” BSP Deputy Governor Francisco Dakila Jr. said in an online briefing on Thursday for the decision of the policy-making Monetary Board (MB).
On Thursday, the peso posted another all-time low against the US dollar at 58.49, its ninth for the year so far.
This, after the Federal Reserve again hiked the Federal Reserve funds rate by another 75 basis points, the third of said level since last June and in addition to the 25 basis points increase last March and the 50 basis points hike last May.
The BSP’s key rates were hiked by 50 basis points on Thursday, the second of the same rate increase last August. This hike is also in addition to the 25 basis points increase in May and June and the 75 basis points off-cycle increase last July.
Authorities and analysts have traced the peso’s weakness to the general strengthening of the US dollar given the continued hikes in the Federal Reserve’s benchmark rates, which have been hiked by a total of 300 basis points since last March to address US’ four-decade high inflation rate.
The government’s Philippine peso-US dollar assumption for this year is a range between 51 to 53 levels.
Authorities said the average level to date remains within target, with the peso starting the year at 52-level against the US dollar.
Dakila said the central bank has a toolkit ready to respond to the volatility in the exchange rate and “to ensure that legitimate demand for foreign currency is satisfied.”
“The BSP stands ready to participate in the foreign exchange market only to ensure orderly market conditions and to reduce excessive short term volatility in the exchange,” he added.
Monetary authorities and analysts have said the hikes in the BSP rates are also to address the interest rate differential with the US.
Dakila said the latest BSP rate hike is primarily aimed at bringing the inflation rate back to within the 2-4 percent target band and not to address the peso’s depreciation.
“We’d like to reiterate that the intention is not to target a particular level or threat of the exchange rate. That is not the policy objective in deciding on the appropriate stance of monetary policy,” he said, adding that the peso-dollar exchange rate level remains market-determined. (PNA)