THE Bangko Sentral ng Pilipinas (BSP) is not inclined to take steps to defend the Philippine peso despite the local currency's struggle last week against the United States dollar.

The peso closed at a new low of P56.77 to the US dollar on Friday and fell to as low as P56.90 during intraday trading. The P56.77 was the lowest since the P56.45 logged in 2004.

BSP Governor Felipe Medalla told The Manila Times in a text message that the central bank does "not target" any particular exchange rate and will not take steps to defend the peso.

"Sometimes, we sell or buy, other times we don't; how much we buy or sell also varies," said Medalla.

"But in general, we don't 'defend' a rate," the central bank chief said.

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Medalla added that the BSP does not also ask traders to buy or sell whatever is needed to prevent an "fx (forex rate) exchange" rate from falling below or rising above "a particular number."

In a separate interview with journalists, Medalla pointed out that monetary authorities had done enough to stabilize the Philippine peso.

"We can say we have done enough. This is no peso problem; it's a dollar problem," he said.

Medalla added that the US Federal Reserve's upcoming rate hike would be a significant factor as the dollar appreciates against all currencies with every rate hike.

Market forces

According to an economist, the peso exchange rate is driven by market forces, and the markets would appreciate "transparency."

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., told The Times that a weaker peso exchange rate would lead to higher importation costs and prices.

A weaker exchange rate, he added, would also lead to an uptick in inflation, and these factors would require "some response" to better manage actual inflation and its expectations.

He also suggested measures to help stabilize the Philippine peso, just like using some toolkits in the past.

The steps would include smoothening any volatility in the market, higher policy rates and tighter monetary policy, among other measures, given the potential impact on both inflation and inflation expectations.

Central banks can defend or stabilize their country's currency by selling part of their gold and dollar reserves.