BSP is committed to controlling excessive currency movements

The Bangko Sentral ng Pilipinas will not allow excessive changes in the peso-dollar exchange, Governor Felipe Medalla said over the weekend.

Medalla confirmed at the annual banking community reception that the BSP is “very active” in the FX market.

Medalla’s statement came days after it asked individuals “who can afford it” to avoid profiting from the forex market trend, saying such activity would not benefit the local currency.

“We will not allow excessive changes in the exchange rate…” he said. “There are so many other things going on right now. It’s very fluid, but we hope the dollar will weaken. I can’t tell you what we’re doing,” he said.

The data showed the country’s gross international reserves stood at $95.0 billion at the end of September, down from $97.4 billion in August, which economists linked to the BSP’s intervention on the Change market.

The peso fell to a new all-time low of 59 to the dollar on October 3 as the greenback gained strength as financial markets expected another massive rate hike by the US Federal Reserve next month. . The peso closed at 58.92 on Friday, lower than 58.653 on Thursday.

The BSP had said it was taking steps to manage any financial market disruptions and reaffirmed its commitment to improving the welfare of Filipinos through a financial system that meets the public’s financing needs while managing risk.

He said market conditions around the world were challenging and working together would keep the financial market functioning while appropriately managing developing risks.

Medalla said the BSP is not expected to synchronize with any further policy action by the US Federal Reserve next month. He said there was no need to match Fed actions point by point.

“Our response would depend on the data… The magnitude of the response depends on the data,” Medalla said.

He assured that there would be no more off-cycle movement in the BSP for the rest of the year. The Monetary Board surprised the market on July 14, 2022 by increasing the benchmark key interest rate by 75 basis points to 3.25%, to contain inflation and support the peso against the US dollar.

The board raised the benchmark key interest rate by another 50 basis points on September 22 to 4.25%, after an earlier hike of 75 basis points by the US Federal Reserve to tame high inflation and persistent in the world’s largest economy.

This took the BSP’s total rate increase this year to 4.25% from 2.25%, up from a record high of 2% at the start of the year. The BSP kept the interest rate at 2% in 2021 to support the recovery of the economy from the pandemic.

Medalla said the economy is expected to “do well” despite headwinds, especially those coming from external fronts, such as the continued conflict in Eastern Europe, rising interest rates and the interest rate. high inflation.

The economy grew by 5.7% in 2021 after a sharp contraction in GDP of 9.6% in 2020 at the height of the pandemic. It posted an average growth of 7.8% in the first half of this year.

“Of course, you could say that we are starting from a very low base. But at this rate, by this quarter, we would have already returned to pre-pandemic GDP levels,” Medalla said.

“Now, of course, we face very difficult challenges. No one, six months ago, would have predicted that the US Federal Reserve would raise its key rates so aggressively. After all, at that time the Fed was saying, “Inflation is transitory. Inflation is not going to be very high. It turns out that perspective was wrong,” he said.

Medalla said the war in Ukraine has also caused the prices of the country’s main imports to rise. This has led to a current account deficit that is expected to reach $20 billion this year, larger than last year’s $5 billion deficit.