The Bangko Sentral ng Pilipinas generally prefers to stick with a market-determined exchange rate, although it could step in to control peso volatility before the local currency slips out of control, its official said.

"What I am afraid of is if we let go, it may be harder to stop it (the peso's slide), so you have to come in and reduce the volatility," BSP Governor Felipe Medalla said during the 17th Asset Summit recently.

"Fortunately, the Philippines was to accumulate a lot of surplus during the time of previous governor Amado Tetangco Jr., which the bank could use to support the peso if needed," he added.

Medalla said the International Monetary Fund considers Philippine reserves "twice more than necessary."

However, he and other central bankers in the region disagree, arguing that if they followed the IMF's advice to "let the exchange rate go," it would mean exposing the bank to potential political meddling.

"You don't know the politics of the situation. If you allow too much change, you are inviting political intervention," the governor said.

Stability fund

Moreover, the BSP governor said that the bank was talking with some of the "bigger countries" in the Association of Southeast Asian Nations to create a stability fund.

"We have an agreement among ASEAN central banks to pool a certain percentage of our resources, which everyone can access during crises," Medalla said
The governor also said that the bank might increase its policy rate by more than 100 basis points before the end of the year.

He noted that the US Federal Reserve would almost certainly raise its interest rates by 75 bps in its next policy meeting, a rate hike which Medalla, as a member of the seven-man monetary board, would vote to match.

"It could be more (than 100 bps). It depends on what the US does," Medalla said, contrary to his previous position that there was no need to match the Fed "point by point."

For his part, Finance Secretary Benjamin Diokno said interest rates should rise by at least another 100 bps before year-end.

Diokno, who preceded Medalla as BSP governor, also emphasized that the executive branch of government, which he represents on the monetary board, will respect the central bank's independence when it comes to monetary policy.

To date, the bank, which has two more policy meetings before year-end, has raised key policy rates by 225 bps in 2022 to fight rising consumer prices and respond to the peso's current weakness.