BSP to focus on addressing inflation as peso stabilizes

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla has said  that with the peso now stabilizing against the United States dollar, they will focus their attention in addressing the elevated inflation rate, which is expected to return to within-target levels by October 2023.

Addressing the recent Chamber of Thrift Banks (CTB) general membership meeting in Makati, Medalla said monetary authorities are not worried on the foreign exchange rate anymore.

There has been an impressive change in the situation particularly last year when the peso registered its record-high closing of 59.00 to a dollar on October 3, 10, 13 and 17, 2022.

During that time, the peso was depreciating against the greenback due partly to the rising interest rates both here and in the US, and the continued acceleration of domestic inflation rate, among others.

To date, the peso trades around the 54-level against the US dollar and ended the week at 54.35.

Medalla said that while the peso depreciation has dissipated, the BSP needs to remain vigilant given the volatilities in the exchange rate on account of the global economic developments. He noted that the peso is currently the most appreciated unit in the region.

“So, there’s a little more time to relax. In the exchange rate front, we can now be more focused because exchange rate is not a problem… the interest rates can now be the instrument that’s fully focused on inflation,” he added, citing that robust foreign exchange inflows, such as foreign direct investments (FDIs), support the local currency.

In an interview after the event, Medalla said the weaker peso is among the shock absorbers of the elevated inflation rate since this situation makes imported goods more expensive, “the best way to discourage consuming imported goods and substituting local goods for them,” he said.

Medalla, however, explained this is not good all the time because it adds to the price pressures. “As I’ve said that’s why letting the peso adjust to reflect market fundamentals is a good idea, except when the exchange rate adjustment  is fast, as this will be followed by more price changes,” he added.

PHOTO: FOCUS ON INFLATION. Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said Friday (March 24, 2023) the stabilization of the peso gives monetary authorities more time to focus on addressing the country’s elevated inflation rate. He forecasts the peso to return  within the government’s 2-4 percent target band by October 2023. (Photo by Joann S. Villanueva)