MANILA, Philippines – The recent weakness of the peso is not expected to stoke inflation, the Bangko Sentral ng Pilipinas (BSP) chief said yesterday, stressing the central bank remains ready to curb any excessive volatility in the foreign exchange market.
“The pass-through of exchange rate movements to the inflation rate has gone down over the years because of gains in efficiency (and) productivity in the domestic economy,” BSP Governor Amando M. Tetangco Jr. told reporters.
“There are also countervailing factors or forces like commodity prices – world commodity prices have not really risen that much partly because the expected global recovery is only beginning,” he continued.
The peso tumbled to a fresh three-year low on Monday, closing at 45.3:$1. It was the unit’s weakest level after finishing at 45.38:$1 on May 6, 2010.
The central bank in September last year noted that the impact of the exchange rate to inflation has been declining, with a pass through rate of 0.06 percent in inflation for every one percent depreciation.
Despite the peso’s losing streak in late 2013, inflation has remained benign as it averaged three percent last year, at the low end of the BSP’s three- to five-percent target range.
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Tetangco, however, stressed the local unit’s volatility is still in line with that of other Asian currencies.
“The (peso’s) volatility remains within the range of volatilities of currencies in the region which is really the objective of the BSP — to leave the exchange rate determination to the market,” Tetangco said.
“But we would be prepared to participate in the foreign exchange trading if there is excessive volatility,” he added.
The peso depreciated by 1.88 percent or 83.5 centavos to 45.23:$1 as of Jan. 28 from its 44.395:$1 finish in end-2012.
“There are tools available to us, both in terms of monetary policy tools, as well as macro-prudential measures,” Tetangco said.
“The tools are there. If there is a need to deploy any one or any combination should the situation requires it, then we will do it,” he added.
