On the foreign exchange market, the peso opened at P57.97 and rapidly slid to P58.20 against the greenback despite market expectations of the “forceful” defense by the central bank of the currency.
The peso's performance on Tuesday was its weakest since November 10, 2022 when it hit P58.19 to the dollar.
BSP Governor Eli Remolona Jr. has repeatedly said that he prefers to let the local currency find its own level, but added that the central bank occasionally intervenes in the foreign exchange market to smoothen out sharp spikes in either direction.
Last week the central bank’s policy making Monetary Board opted to keep its closely tracked overnight rate at 6.5%, noting that inflationary risks remain in the local economy. But during the same briefing announcing the policy, Remolona signaled the central bank’s “dovish” intent, saying that rate cuts were possible in the second half of 2024.
High interest rates help boost the value of the peso because foreign asset managers tend to convert their cash into pesos to take advantage of higher returns, while lower interest rates tend to weaken the local currency.
However, high interest rates are also a drag on the economy because they make it more expensive for businesses and consumers to borrow money, thus dampening economic activity.
Senior Reporter
