BSP Burns Reserves Defending Peso at Record Low

The Philippine peso has repeatedly tested its all-time low of 61.75 per dollar this week, prompting the central bank to sell dollars to prevent a breach. The Bangko Sentral ng Pilipinas has intervened to dampen volatility as escalating US-Iran tensions and rising crude prices pressure Asian emerging markets.

This defense establishes a de facto floor for the currency, which first hit 61.75 on April 30 and has revisited that level 10 times since. The move mirrors a broader regional pushback against a resurgent dollar, with the Reserve Bank of India also stepping in to support the rupee and Japanese authorities on high alert near 163 per dollar.

However, maintaining this line carries a steep price. The BSP has drained billions from the nation's foreign-exchange reserves, which have fallen more than 5 percent this year. The strategy reflects a regional trend of diminishing buffers, with Indonesia's reserves dropping by about $10 billion this year and India's central bank amassing over $100 billion in short dollar forward positions over the past two years.

Traders are now weighing how long the Philippine central bank can sustain this effort. “It will be increasing difficult and costly for BSP to hold the line at a specific level,” said Wee Khoon Chong, senior Asia Pacific market strategist at BNY in Singapore. “This will exert pressure on foreign-exchange reserves, which have already fallen this year.”

The central bank insists it does not target a specific exchange rate, with Governor Eli Remolina stating in June that the peso generally seeks its own level. Yet policymakers are highly motivated to prevent a weaker currency from stoking domestic inflation.

A Bloomberg survey forecasts the currency will be largely steady by the end of the quarter. Still, investors remember that a previous line in the sand at 59 per dollar held for nearly two years before finally breaking late last year.