(Bloomberg) -- The Philippine central bank warned it will intervene in the currency market after the peso dropped past the key 58-per-dollar level.

Authorities will step in “when necessary to smoothen excessive volatility and restore order during periods of stress,” Governor Eli Remolona said in an emailed statement Tuesday. The peso weakened as much as 0.7% to 58.28 per dollar on the day, approaching the record-low level of 59 touched in 2022. 

Bearishness toward the peso increased after Remolona signaled last week that Bangko Sentral ng Pilipinas may begin cutting the benchmark rate as early as August. That places the central bank in contrast with its peers in Thailand and Indonesia, which are reluctant to lower rates as the Federal Reserve debates the timing of its own easing.

“Last week’s dovish BSP sentiment carried over to today’s session, especially with Fed speakers reiterating hawkishness,” said Robert Dan Roces, chief economist at Security Bank Corp. in Manila. “BSP will defend the peso, but they would also want to consider the impact on reserves. It’s a bit of a bind for them, especially as volatility may occur again.”

Emerging markets have been under pressure this year from bouts of dollar strength, with nations such as Indonesia tapping their dollar reserves to shield their currencies. In the Philippines, reserves fell by $1.4 billion in April to $102.6 billion, the largest monthly decline since September.

The peso’s three-month implied volatility has risen to about 5.50% after falling to 4.48% in March, which was the lowest since 2021.

The central bank “continues to monitor the foreign-exchange market but allows the market to function without aiming to protect a certain exchange rate,” Remolona said. He attributed the peso’s decline to the dollar’s strength as the Fed signals a delay in rate cuts.

When asked if the peso may weaken back to the 59 level on Tuesday, Finance Secretary Ralph Recto said: “your guess is as good as mine.”

Strong Dollar

The dollar strengthened against most of its Group-of-10 and Asian peers Tuesday after Cleveland Fed President Loretta Mester joined other US policy makers in suggesting there’s less scope for rate cuts than previously expected. The won slid almost 1%, while the Aussie and the kiwi both fell as much 0.3%.

The Philippine government vowed in late 2022 to act aggressively to stop the peso from breaching 60 per dollar. The currency has fallen more than 3% this quarter to be the worst performer in emerging markets after the Argentine peso.

--With assistance from Manolo Serapio Jr. and Marcus Wong.

(Updates with central bank governor’s comment in seventh paragraph.)

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