It was on May 21 that the Philippine peso went down to the level of P58 to a US dollar, which caused panic among stock market investors.

And since then, the peso has never recovered to the P57:$1 level, although it closed at P57.88 against the US dollar on May 29.

On June 5, the peso closed almost at P59:$1, or at P58.88 to a US dollar, fueling fears that the local currency may soon hit P59:$1 if the BSP does nothing.

And the BSP has so far done nothing but said that intervening in the foreign exchange (forex) market to keep the peso-dollar rate stable can be considered.

Specifically, on May 21, BSP Governor Eli Remolona said the BSP will continue monitoring the forex market and that no moves to protect the peso was on the table yet.

“Nonetheless, the BSP will participate in the market when necessary to smoothen excessive volatility and restore order during periods of stress,” he said.

The BSP said that the peso has been weaker against the dollar because the US Federal Reserve has said that it cannot commit yet to a reduction in policy rates in the United States. It added that other currencies in Asia also went down because of that pronouncement of the US Federal Reserve.

While the BSP believes that it should not yet intervene in the forex market to stabilize or protect the peso against the US dollar, a weaker peso will contribute to inflation pressure as the Philippines imports almost all of its petroleum or fuel requirements, and is a net importer of food products.

When it announced the May inflation rate of 3.9%, the Philippine Statistics Authority (PSA) said the main contributors to headline inflation were the following:

a. Food and non-alcoholic beverages with 56.6% share or 2.2 percentage points (ppt);
b. Restaurants and accommodation services with 13.2% share or 0.5 ppt; and
c. Transport with 8.2% or 0.3 ppt.

Obviously, the food and restaurant, and transport businesses are dependent on imported inputs, particularly imported food and fuel, respectively.

And when it comes to food imports, the Philippines imported $17 billion in 2023, which, however, is a 7.2% decline from the $6.428 billions of 2022.

When it comes to food exports, the country remains a laggard with $6.428 billion in 2023, which is a 14.3% decline from the $7.498 billions of 2022.

ACTING BEFORE IT IS TOO LATE

Whatever inflationary effects of the peso struggling versus the dollar will be felt more in June, especially if the local currency stays in the upper range of the P58$1 exchange rate.
The PSA will announce the inflation rate for June on July 5 or 8.

And as to when the BSP will find it urgent to intervene in the forex market to protect the peso from further failing against the US dollar is anybody’s guess.

To recall, President Ferdinand Marcos Jr. declared in October 2022 that the government was ready to defend the peso from depreciating further against the US dollar.

“We may have to defend the peso in the coming months, but the overall forecast is that we are still doing better than other countries in terms of inflation,” he said then.

In September and October 2022, the peso-dollar exchange rate surpassed the P59$1 level.
In latter part of November 2022, the peso-dollar exchange rate settled at P56$1 and P55$1 in December that year.

(PHOTO FROM PIXABAY)