Incoming Bangko Sentral ng Governor Felipe Medalla is not losing sleep over the peso breaching the 54 to the dollar rate.
“This is a strong dollar problem, not a weak peso problem…The reason the dollar is so strong is their inflation rate is so high and as a result they will jump up their interest rates much more than we will and we already see this…the worst affected country here is not us, Japan,” said Medalla in an interview with TV5’s “The Chiefs.”
“Because Japan has no inflation problem therefore it has no reason to raise interest rates. American interest rates will be much higher than Japan and money will move from the low interest rate country to the high interest rate country.. If you look at all the currencies, we are just in the middle. Half the countries depreciated more than us, another half appreciated more than us,” Medalla added.
Medalla shot down critics who claimed the peso’s drop to its lowest in four years was due to the BSP’s dovish stance on inflation.
“Those guys don’t know enough about what we see. So, because it’s so easy to make the peso strong by killing the economy. Imports will drop. We make the interest rate 10 percent, of course you have a very strong peso but why would you wanna do that?” said Medalla.
“If you kill the economy, imports will drop so those guys who are saying “oh we’re not raising interest rates enough”, we are doing a balancing act. What we care about is Philippine inflation, not the exchange rate,” he added.