Philippine central bank will cut FX interventions, governor says

The Philippine central bank is finalising a new framework that will limit its foreign exchange market interventions, governor Eli Remolona said on January 4. 

Inflation fell to within the central bank’s target range in December, data from the official statistical agency showed today (January 5). 

“We think intervention should only happen during times of stress,” Remolona said at a business forum. “I think we’ve been intervening a bit too much,” he said. “If it’s about containing stress, that also means intervention should be infrequent.”

The governor said the Central Bank of the Philippines (BSP) occasionally intervenes in the FX market, but is finalising a framework that would serve as guidance. Senior assistant governor Edna Villa is responsible for completing the framework and the central bank’s monetary board would be briefed about the plan, Remolona said.

The central bank has faced pressure to defend the peso against the US dollar as the Federal Reserve continued to raise interest rates. It does not publish data about its FX interventions.

In September, Remolona signalled that officials were intervening to defend the peso at the 57-per-dollar level to prevent sharper depreciation. The peso has since strengthened to 55.6 as of 4pm Manila time on January 5.

Remolona also recalled a “stressful episode”’ in October 2022 when the peso hit a record low level of 59 per dollar.  “Those are the events in which we want to intervene,” he said.

He said the central bank will also look at the experience of its regional peers as it develops the new framework.

In December, the International Monetary Fund said it was crucial for the Philippines central bank to let the exchange rate continue to absorb shocks. But it might consider temporary FX interventions to ensure orderly market conditions and address risks to price stability, the IMF said.

The central bank’s international reserves stood at $102.7 billion by the end of November, after falling to below $100 billion between June and September. 

Inflation returns to target

​The Philippines’ headline inflation slowed to 3.9% year on year, returning to the central bank’s 2–4% target, data released by the Philippine Statistics Authority today showed. The latest figure fell from a 14-year high of 8.7% in January and 4.1% in December. It was the lowest level since February 2022.

Core inflation, excluding oil and food, fell to 4.4% year on year in December from 4.7% in November.

The central bank has kept its key rate unchanged at 6.5% for two consecutive meetings since November, after raising it by a total of 450 basis points since May 2022 to curb inflation.

In a statement released today, the central bank said the latest inflation figures are consistent with its forecast path. It expects inflation to continue to moderate in the coming months, due to easing supply-side pressures and negative base effects. 

The monetary board will keep policy “sufficiently tight in the near term” to better anchor inflation expectations and mitigate second-round effects, it added.