Driven by fastest inflation – Phl, latest in Asia to tighten policy

The United States Federal Reserve is pursuing a tight monetary policy to rein on inflation which has affected the American stock markets.,The US government acknowledges that the red-hot inflation seems to be spreading fast to many parts of the world.   As such, taking drastic and urgent measures was necessary to stop the rising prices. Most world economies, including the Philippines, are already feeling the heat. On this premise, the Philippines Central Bank has responded by raising its interest rate for the first time since 2018 to try and mob out excess liquidity in its market. The move is intended to help curb inflation which is already ravaging most Asian countries.,Therefore, the Philippines central bank has increased its benchmark rate to 2.25% by about 25 basis points. Thus, making the Philippines the latest country in its monetary policy after India and Malaysia raised the borrowing rate to help reign in rising commodity prices.,Asian countries’ economies are hard hit by the war in Europe, the US inflation and disruptions in the supply chains caused by the lockdown in China. Consumer prices are at 4.9%, way above the central bank’s 2%, the second fastest rate in Asia. Philippines benchmark stocks index fell by 1% as investors offloaded risky stocks to mitigate the losses. BSP’s action has affected the forex market. With so many uncertainties in the stock market it is very important to  have a guide to trading currencies. Having a guide in trading currencies can be a great help to many traders especially those who are new traders.,Despite what has happened the Philippines economy performed better than predicted in the first quarter, so BSP has been called upon to act first to keep inflation in check and recover on track. But there are plenty of factors that need to be checked to keep the economy on a growth trajectory. Amongst them include the improving labor market conditions and robust economic recovery. The  pandemic restriction in China, also one of the factors since China is the country’s top trading partner.,According to Benjamin Diokno- the Philippines’ central bank governor, the recent weakening of the Peso against the American dollar should not worry the country since it was expected to weaken in response to the tight monetary policy the Fed has put in place. He further said that the Philippines has enough foreign exchange reserves and is no longer dependent on foreign debt.,On Tuesday morning peso weakened by more than 2.5 percent against the dollar and traded at 52.38 per USD. The slide was a response to the CNN Philippines report that Ferdinand Marcos Jr. won the presidential election. But Peso is not the only currency experiencing downward trends. Many  currencies in the Asian region are going through difficult times. They are weakening against the dollar as the Federal Reserve continues being more hawkish as it tries to nip the red-hot inflation in the bud. For instance, the Indonesian Rupiah slid by 2 percent against the USD while the Malaysian and Thai baht ringgit slid by between 4 and 5% against the greenback. So to understand how far the Peso is likely to depreciate, it may be necessary that we look at the leading regional currencies and the political activities taking place in the Philippines.,According to the Philippines central bank governor, Peso is not expected to depreciate further because the country no longer depends on foreign debts. Also, the central bank has enough foreign reserves for imports. The foreign exchange reserves can last for 9.6 months. The governor further said that the country receives about $30 billion per year as remittances from abroad from its citizens. In addition, outsourcing businesses add another $30billion to the national treasury, making the country self-sufficient.,With these statistics, he said that what happens to Peso should not be of concern since there are enough foreign exchange reserves and that the peso forecast ranges from 48 to 53 per dollar.,By raising its borrowing rate, the central bank anticipates that commercial banks will respond by limiting the amount of credit to their customers. The effect is to reduce the amount of money in circulation and control inflation., ,