The peso breached the P52 level vis-à-vis the US dollar on Monday, March 7, as the Russia-Ukraine war is affecting foreign exchange pricing and increasing currency volatility.
The local currency fell to a 30-month low and closed at P52.18:$1 after hitting an intraday P52.19 from its Friday, March 4’s close of P51.74.
The last time the peso weakened to the P52 level was on Sept. 26, 2019 when it depreciated to P52.11, closing exchange rate. Intraday, the peso depreciated to P52.18 on Sept. 27, 2019.
The Russia-Ukraine war has led to volatility in oil and commodity prices due to supply fears and rising inflation across the globe, including in the Philippines.
Before Feb. 24, when Russia first invaded Ukraine, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said a weak peso will not likely disanchor inflation expectations which remain manageable in the next two years.
With the Russia-Ukraine war, the BSP has added this worry to existing concerns in the potential increase in market volatilities from the impending interest rate hikes in the US and other advanced economies which could lead to capital flow reversals and a depreciating local currency.
For now, the government as advised by the BSP, is maintaining a peso-US dollar rate assumption of P48 to P53 from 2022 to 2024. This assumption is consisent with expectations of the gradual normalization of the US monetary policy.
Diokno on Sunday, March 6, said the impact of the Russian-Ukraine war on the foreign exchange rate is muted.
He said the peso has continued to trade sideways versus the US dollar, with a “slight depreciation pressure.”
“The BSP views such development as a result of the impact of the geopolitical tensions on oil prices, which likewise affected the peso. But this is in line with the behavior of other currencies in the region which also depreciated against the US dollar. It should be noted, however, that the Philippines has more than adequate level of foreign exchange reserves to temper any volatility in the exchange rate market,” said Diokno.
He said the country’s external sector is supported by structural inflows from overseas Filipino remittances, receipts from business process outsourcing, and foreign direct investments which have shown resilience even amidst the pandemic. “In addition, the BSP has various liquidity-enhancing tools that can be deployed in case the domestic liquidity situation becomes unexpectedly tight or disorderly including actions adopted during previous crises episodes,” he also said.
Last month, BSP Deputy Governor Francisco G. Dakila Jr. has said that in as far as inflation path is concerned, they are not concerned about a depreciating peso since the pass-through rate to inflation has gone down considerably with BSP’s adoption of inflation targeting scheme. The exchange rate pass-through is a measure of how domestic prices respond to changes in the exchange rate.
Credit belongs to : www.mb.com.ph