THE local currency will be one of the main considerations in the Bangko Sentral ng Pilipinas’s (BSP) monetary-policy decision in its upcoming August meeting, as the Central Bank admitted that the peso’s weakness may feed the country’s inflationary balloon further.
In a recent speech, Central Bank Governor Nestor A. Espenilla Jr. said they are keeping “utmost vigilance,” particularly in potential price pressures from excessive volatility in the foreign-exchange market.
“While we believe that our fundamentals remain solid and healthy, sustained pressures on the peso could adversely affect inflation expectations,” he said.
Espenilla said among the pressures pulling the peso downward include the recent and planned interest-rate hikes by the US Fed and brewing trade tensions among key economies.
Recently, local bank economists also flagged risks on the excessive weakness of the peso against the dollar, saying it remains to be one of the upside risks to the already rising inflationary pressures in the economy.
International credit watchers also said persistent pressure on the current and capital inflows—which, in turn, sway the movement of the local currency—pose “material challenges to policy-makers in ensuring that inflation expectations and inflation pressures are contained.”
Year-to-date, the peso has depreciated by around 7 percent against the US dollar, making it one of the weaker performers in the region.
On Monday the peso traded at 53.48 to a dollar, gaining a few centavos of value from the previous trading day’s 53.51 to a dollar.
The total traded volume during the day was at $399.6 million.
Espenilla earlier vowed to consider a “strong follow-through monetary adjustment at the next meeting of the Monetary Board in August.”
“The pace and magnitude of policy tightening will necessarily be dependent on our comprehensive and rigorous assessment of all relevant data and forecasts. This is consistent with our long-standing disciplined approach to inflation targeting,” Espenilla said.
Recent data show inflation averaged at 4.3 percent in the first half of the year, with its latest print hitting 5.2 percent in June.
The BSP is set to meet again for its monetary- policy meeting on August 9. This will be the fifth monetary-policy meeting of the BSP for the year.
Image credits: Nonie Reyes