Metro Manila, Philippines— As the peso continued to come off its record lows to stay within the ₱55-per-dollar range, a weak local currency stoking inflation has become less of a headache for Philippine monetary authorities, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said on Tuesday.

Five days before Christmas, the peso extended its rally to close Tuesday’s trading at ₱55.24 per dollar, its best finish in four-and-a-half months or since Aug. 5, according to data from the spot currency market. That’s a far cry from the record low ₱59-per-dollar it hit last October.

“The worst is over for the strong dollar,” Medalla told reporters in a briefing held on Tuesday.

Higher US interest rates to combat inflation have propelled the dollar in recent months as investors sought safe haven assets. The wider interest rate differential had hurt riskier assets like Asian currencies, including the peso, forcing most central banks in the region to intervene in currency markets.

But the BSP has been moving in lockstep with the US Federal Reserve, matching the latter’s jumbo rate hikes before easing to just half-a-percentage point at last week’s rate setting meeting. Those rate hikes had somehow helped ease the pressure off the peso whose weakness worsened imported inflation, analysts earlier said.

“The weak peso further aggravating the inflation is no longer a big problem. But there are other sources of inflation,” Medalla pointed out.

The way the central bank steps in to smoothen foreign exchange volatility in the spot currency market has also changed.

“Ang central bank dati day in, day out we are net sellers. Ngayon hindi na ganun. Laki na ng pinagbago,” Medalla said.

[Translation: The central bank in the past months, day in, day out, we are net sellers. That is not the case anymore. So much have changed.]

The central bank signaled at least two more rate hikes are forthcoming early next year but at a softer magnitude, given its forecast that inflation could be “closer to 3% than to 4%” by the third quarter of 2023, putting it back on track to meeting its target.

“I will not bet my life or even one-week salary that after two meetings next year, wala na. It cannot be ruled out,” the BSP chief said.

“It is safe to say that the terminal policy rate is higher than what we have now. How much higher, we don’t know,” he added.

The BSP’s key policy rate currently stands at 5.5%, the highest in 13 years.