FOCUS ON INFLATION. Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said Friday (March 24, 2023) the stabilization of the peso gives monetary authorities more time to focus on addressing the country's elevated inflation rate. He forecasts the peso to return  within the government's 2-4 percent target band by October 2023. (Photo by Joann S. Villanueva)

MANILA – With the peso now stabilizing against the United States dollar, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said Friday they can now focus in further addressing the elevated inflation rate, which is expected to return to within-target levels by October 2023.

In his speech during the Chamber of Thrift Banks (CTB) general membership meeting in Makati, Medalla said monetary authorities are not worried on the foreign exchange rate anymore, a change from the situation particularly in 2022 when the local currency registered its record-high closing of 59.00 to a dollar on Oct. 3, 10, 13 and 17.

During that time, the peso was depreciating against the greenback due partly to the rising interest rates both here and in the US, and the continued acceleration of domestic inflation rate, among others.

To date, the local unit is trading at 54-level against the US dollar and ended the week at 54.35.

Medalla said that while the peso depreciation has dissipated, the BSP needs to remain vigilant given the volatilities in the exchange rate on account of the global economic developments.

He said the peso is currently the most appreciated unit in the region.

“So, there’s a little more time to relax. So in another words, in the exchange rate front, we can now be more focused because exchange rate is not a problem… the interest rates can now be the instrument that’s fully focused on inflation,” he added, citing that robust foreign exchange inflows, such as foreign direct investments (FDIs), support the local currency.

In an interview after the event, Medalla said the weaker peso is among the shock absorbers of the elevated inflation rate since this situation makes imported goods more expensive.

“(This is) the best way to discourage consuming them (imported goods) and then substituting local goods for them,” he said.

Medalla said this is not good all the time because it adds to the price pressures.

“As I’ve said that’s why letting the peso adjust to reflect market fundamentals is a good idea, except pag sumobra ang bilis ng adjustment ng exchange rate maraming presyo na susunod sa kanya (when the adjustment of the exchange rate is fast, this will be followed by more price changes),” he added. (PNA)