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Given the ongoing increases in the Federal Reserve’s fund rate, additional increases in the Bangko Sentral ng Pilipinas (BSP) key rates are anticipated to help address both the peso’s weakening and the nation’s increasing inflation rate.

Lead market strategist for Bank of the Philippine Islands (BPI), Marco Javier, stated in a virtual briefing on Thursday that the bank anticipates the local currency to average 56 to the US dollar this quarter and strengthen to 55.30 in the last three months of the year.

A record low since October 13, 2004, the local currency almost reached 56.45 to the US dollar in recent weeks, in part due to the US’s rising inflation rate and normalization of monetary policy.

Javier attributed the improvement to the 55-level in part to the off-cycle 75 basis point hike in the BSP’s key policy rates on July 14. This move came in response to the US reporting yet another increase in its consumer price index, which rose to 9.1 for June 2022.

The outlook for the local unit’s level improvement in the final quarter of this year, according to Javier, depends on the robust seasonal expansion of remittances from overseas Filipino workers (OFWs) during the Christmas holidays and expectations that oil prices will continue to average at USD100 per barrel for the remainder of the year.

He claimed that while the home economy’s rise in domestic demand is positive, the local currency will suffer because of larger imports as the economy continues to grow.

The interest rate disparity with the US, he noted, is also detrimental to the peso, which is why it is anticipated that the policy rates of the BSP will continue to rise given the same prognosis for the key rates of the Federal Reserve.

The BSP’s overnight reverse repurchase (RRP) rate was predicted by BPI to be 4.25 percent by the end of 2022.

The RRP rate is currently 3.25 percent.

After a 200 basis point drop in 2020 to a record-low 2 percent for the RRP, the BSP has raised its key rates a total of 125 basis points this year.

Felipe Medalla, the governor of the BSP, promised to employ all available tools to confront inflation threats brought on, in part, by the peso’s depreciation.

After the two-day Federal Open Market Committee meeting that ended on July 27, the Federal Reserve increased its benchmark interest rates once more by 75 basis points.

Fed fund rates currently range from 2.25 percent to 2.5 percent.

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