MANILA — The Bangko Sentral ng Pilipinas (BSP) on Monday said that the depreciation of the peso is “only temporary,” citing a regional trend of weakening currencies against the US dollar.

Last week, the Philippine peso depreciated to P58.27 to the dollar, the lowest since November 2022.

“This is only temporary. Once things clear up, it will be the fundamentals that will determine the exchange rate,” BSP Senior Assistant Governor Iluminada Sicat said during the Philippine Economic Briefing.

“We also look at what’s happening around the area. Are we the only ones depreciating or not?” she said.

Peso depreciates to P58.27 to US dollar on May 21

While the Philippines does “not target any specific exchange rate level” and just lets “the market determine the level of the exchange rate,” Sicat noted that the government is keeping a close look at market stresses.

“If we let the market stress left unattended, this would affect inflation expectation and that is something we are avoiding,” the BSP official said.

Decisions of central banks “should be data dependent and driven by domestic considerations,” said Ragnar Gudmundsson, resident representative to the Philippines of the International Monetary Fund.

“Foreign exchange flexibility should be taken as a first priority,” he said.

“It is the combination of foreign exchange flexibility with a credible inflation targeting regime that really matters to anchor investors,” he said.

“We have to hold the line on that front… with a continued commitment to price stability,” he added.

So far, trends in the Philippines “are encouraging” as the “upside risks stem from geopolitical tensions… and also domestically on some demands for higher wages,” according to the IMF’s analysis.

“What is most important for the Philippines is really to address volatility caused by the Fed’s shifting stance,” Gudmundsson said.

Among the possible solutions is a “mix of monetary and non-monetary measures” including the “import of cheaper food items” to mitigate the impact of food prices for more vulnerable households,” he said.