The peso exchange rate will continue to be affected by external events, the Bangko Sentral ng Pilipinas (BSP) warned on Thursday following another massive rate hike by the US Federal Reserve.
“The actions of the US Federal Reserve (Fed), along with tightening global financial conditions and growing uncertainty about global growth prospects, could continue to cause exchange rate fluctuations in emerging markets, including the Philippines,” BSP Governor Felipe Medalla said. says in the statement.
The US central bank raised its base rate by another 75 basis points (bp) on Wednesday to fight persistent inflation. For the first time in modern history, the Fed raised interest rates by 75 basis points twice in a row.
On Thursday, the peso lost 14 centavos to close at 55.82 pesos against the US dollar. It was the worst day in almost 18 years last July 12 when the price reached 56.37 pesos: $1.
Medalla said that BSP is ready to use all available tools to address potential risks associated with external events.
“At the same time, the BSP will continue to be guided by its assessment of domestic and global developments that affect the outlook for inflation and growth,” he added.
Inflation jumped to 6.1 percent in June. The BSP Monetary Board now expects it to average 5 percent, up from 4.6 percent previously, and exceed the 2-4 percent target.
Rising inflation prompted BSP to announce a 17 basis point off-cycle rate hike on July 15 last year, following two consecutive 25 basis point rate hikes in May and June. Rates on loans, deposits and overnight central bank loans are currently 3.25%, 2.75% and 3.75% respectively.
Medalla said further monetary policy adjustments will be made in the coming months, with the main goal of preventing inflation from taking root further.
“BSP believes that the Philippines’ robust economic outlook continues to leave enough room for further monetary tightening. As always, BSP’s future monetary policy decisions will continue to be driven by the results of the Philippine economy data,” he added.