Line in the sand for the peso (2)

PHILIPPINES - In Brief 24 Oct 2022 by Romeo Bernardo
Finance Secretary Benjamin Diokno wisely walked back today his comments about government’s plan to defend the peso (see In Brief with same title released 22 October). Based on the Bloomberg report we saw, the key message is that the BSP is independent and its policy decisions are made by the seven-member Monetary Board. Secretary Diokno sits as a member of the Board which is chaired by BSP Governor Felipe Medalla. We think this prompt and explicit referral of monetary policy to the proper authority is a good course correction. Governor Medalla previously said that a differential of at least 100bp between local and US policy rates is needed to maintain some exchange rate stability, signaling a probable matching of forthcoming US interest rate hikes. The key overnight policy rate currently stands at 4.25% compared with the target fed funds rate of 3% to 3.25%. The exchange rate traded within a tight band today, keeping close to P59/$ and closing at 58.87.

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