Peso drops to P58 to a US dollar; delays in policy rate reductions affect

The peso on Tuesday (May 21) fell to P58.27 against the US dollar, almost reaching levels in the latter part of 2022, caused mainly by delays in reduction of key policy rates in the Philippines and the United States.

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said the dollar strengthened against the Philippine peso following the Federal Reserve’s statement to delay easing of interest rates.

“The peso weakened beyond 58 to the US dollar today (May 21), in line with other currencies in the region,” he said.

“The dollar continued to strengthen as the Federal Reserve signaled delay in cutting interest rates,” he added.

It was on November 8, 2022 that the peso breached the P58 level, closing at P58.275 against the dollar.

On Monday (May 20), the peso closed at P57.90 against the dollar.

US Fed officials earlier said a rate cut will be on hold until inflation returns to their 2-percent target.

For its part, the BSP earlier said that a policy rate cut is possible starting August this year.

At the start of the year, the central bank said that easing policy rates is possible in the second quarter of this year. However, that did not happen as the country’s inflation rate went up for three straight months or to 3.4% in February, 3.7% in March, and 3.8% in April.

The main policy rate of the BSP remains at a high of 6.5%.

Remolona assured that the BSP continues to monitor the foreign exchange market but allows the market to function without any intervention from the government.

“Nonetheless, the BSP will participate in the market when necessary to smoothen excessive volatility and restore order during periods of stress,” he said.

When the peso reached P59 against the dollar in the latter part of 2022, the government said it would intervene in the foreign exchange market to protect the peso.

While a weaker peso favors exporters and families of overseas Filipino workers, it becomes more costly for importers to bring in vital products into the Philippines, including much-needed industrial equipment needed by factories.

Also, the Philippines is still an importer of rice, with the United States Department of Agriculture projecting imports of the staple reaching 3.9 million metric tons this year. This means that future imports of rice will be more costly for the country, affecting the poor Filipino households.

In turn, an upward pressure on local rice prices can push rice inflation, which has been over 20% in the past four months.

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