Weaker peso signals slower BSP rate cuts

While the Bangko Sentral ng Pilipinas (BSP) sees no need just yet to defend the Philippine peso amid global oil price risks, the plunging local currency may push monetary authorities into more cautious policy easing moving forward, economists said.

- By DERCO ROSAL

Japanese financial giant MUFG Bank Ltd. said that the BSP would likely kick-off an aggressive intervention to the foreign exchange (forex) rate if the peso continues to abruptly weaken to the P59:$1 level, as the central bank is concerned of the pass-through effect of currency depreciation.

“We think there’s a good chance the BSP will start to intervene more aggressively if Philippine peso weakness continues unabated towards the P58-P59 levels within a short space of time,” MUFG Global Markets Research senior currency analyst Michael Wan said in a commentary published on Friday, June 20.

This came after BSP Governor Eli M. Remolona Jr. earlier asserted that aggressively intervening only to maintain the United States (US) dollar-peso exchange rate is “futile.” But he followed it with an assurance that if the massive peso devaluation prolongs, the central bank might step in.

As of Thursday, June 19, the market continued to witness further decline in the value of the peso against the “safe haven” US dollar, falling to ₱57.45:$1 from P55 levels a week ago. This downward trend for the local currency—a 1.7-percent drop since it began falling—was first seen on Friday last week, following Israel’s air-strikes on Iran.