Philippine central bank governor signals Less forex Intervention

Philippine central bank governor Eli Remolona.

MANILA: The Philippine central bank is moving toward a "less managed” exchange-rate framework, Governor Eli Remolona said, as cooling inflation eases pressure on policymakers to curb the peso’s weakness.

"We think intervention should only happen in times of stress,” Remolona told a forum on Thursday in Manila, acknowledging that the Bangko Sentral ng Pilipinas has been "intervening a bit too much” in the FX market.

The BSP had intervened to protect the peso in recent years to rein in imported inflation as the dollar’s strength pummeled emerging-market currencies globally.

In September, Remolona signaled that officials were intervening to defend the peso at the 57-per-dollar level to prevent even sharper depreciation. Those efforts have paid off, with the peso among the few Asian currencies to advance against the dollar last year.

Remolona also cited October 2022 as a stressful episode. In the latter half of 2022, the country’s foreign currency reserves fell below $100 billion as the monetary authority prevented the peso from breaching 60 against the dollar.

The peso was little changed at 55.47 per dollar at 2:52 p.m. local time. The currency gained 0.7% in 2023, halting two years of declines.

Inflation

Inflation forecast to have returned in December to within the central bank’s 2%-4% target for the first time in 21 months is giving Remolona scope to refrain from further interest-rate hikes. The BSP is no longer behind the curve in taming prices, the governor said.

"We’re kind of in a neutral territory at this point,” he said of the policy rate, even as he suggested that monetary policy stance will remain tight while inflation is elevated.

Remolona has repeatedly signaled that the BSP is unlikely to pivot to policy easing soon as price risks persist, including El Nino’s effects on food and energy costs. Most economists surveyed by Bloomberg also don’t see a rate cut until the second half of this year.

The BSP’s key interest rate is at a 16-year high of 6.5%. It is scheduled to decide on the policy rate on Feb. 15.

-- With assistance from Cliff Venzon and Ditas Lopez. - ©2024 Bloomberg L.P.