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Keep close watch on falling peso, rising prices

BANGKO Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said Monday he sees no need to adjust Philippine interest rates in the face of the expected rise in US rates sometime this month. But the BSP is closely monitoring the situation, he assured, and is ready to take any needed action at its policy meeting on March 23.

The governor was commenting on international developments that are beginning to affect the Philippines in a most critical manner – in rising prices of consumer goods. Since the US Federal Reserve announced its intention to raise interest rates, equities investors around the world have been quickly shifting to the dollar.

This has caused the peso and other non-US currencies to depreciate in value. This, in turn, has pushed the inflation rate up – in other words, consumer prices have risen. For a weaker peso means higher prices for all imported dollar-denominated goods – notably fuel for our vehicles and some power plants, rice and other food importations, vehicles and vehicle parts and other imported machinery.

The peso’s value in relation to the dollar has been steadily dropping – from R46 to $1 for many months, then to P49, to P50, to P51 per dollar this month. It improved to P50.27 last Tuesday, but a study by Metrobank Research sees the rate hitting P51.30 to the dollar.

Meanwhile, reacting to the changing peso-dollar rate, the inflation rate – consumer prices – rose to 3.3 percent, year-on-year, this February, from 2.7 in January. It was the fastest rate increase in the last 27 months, according to the Philippine Statistics Authority.

The slide in the value of the Philippine peso has been mainly blamed on the rising US dollar rate. Some analysts say Philippine political developments may also be causing the negative market sentiment – the killings in the war on drugs, claims of continued corruption in some government agencies, even the uncertainty of the security situation in the South China Sea.

It is difficult to pin down the cause of the falling peso rate and the quickening inflation. The BSP is closely watching the situation, as are the national government’s economic managers. The expected US Federal Reserve announcement of increased dollar rates is the immediate cause of the problem but we should be alert to other possible reasons for the rising prices and take whatever corrective action may be deemed necessary under the circumstances.

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