MANILA, Philippines–The Bangko Sentral ng Pilipinas (BSP) on Thursday said it would protect the peso from potential foreign exchange swings arising from the United States Federal Reserve’s decision to keep interest rates low.
In a text message to reporters, BSP Governor Amando M. Tetangco Jr. said that “many analysts had anticipated the Fed move to keep the language of maintaining its stance for a ‘considerable’ time after the end of the asset purchase program.”
As such, Tetangco pointed out, “the dollar yields did move up last night, but not in a destabilizing manner. So, with this out, plus the Fed’s higher rate projections, and contrasting these with the expected policy moves in other advanced economies, markets could still view this as supportive of generalized US dollar strength, which could translate to near-term weakness in regional currencies. That said, we don’t expect wild swings in regional currencies,” after the Fed action.
To temper volatility, the central bank “will continue to monitor developments closely and maintain a presence in the market as needed to smoothen excessive exchange rate movements,” he said.
In the past few days leading to the US Fed announcement, the Philippine peso weakened and slipped past the 44:$1 mark.
Last Monday, the peso settled at P44.180 against the greenback, the weakest level since early May.
The peso further dropped to 44.26:$1 on Wednesday, or a day before the US Fed announced it would maintain interest rates near zero for a considerable time.
Tetangco early this week attributed the weakening peso, alongside other currencies in the region, to expectations of “more hawkish” statements from the US Fed.
“Our foreign exchange policy remains the same—that is, to allow market forces to essentially determine the value of the peso, not go against the fundamental trend, but keep room for official action to guard against excessive volatility. We have the tools to address potential further excesses,” Tetangco said on Monday.