Peso weakens to 44:$1 as inflation hits 9-yr high

MANILA, Philippines- (Updated 5:33 p.m.) The Philippine peso closed at its lowest level in about eight months on Thursday, weakening past the P44 to a US dollar level, after the government announced that inflation reached record levels in May. The peso also weakened as traders anticipated at least a 25 basis point rate hike from the Bangko Sentral ng Pilipinas, which is currently meeting on its monetary policy. Higher interest rates is a tool central banks use to curb inflation. Less than an hour after peso trading closed, the BSP announced that it indeed hiked interest rates by 25 basis points. The central bank's action raises its overnight borrowing rate to 5.25 percent, and its overnight lending rate to 7.25 percent. The local currency closed at P44.07 to a greenback, after touching a high of P44 and a low of P44.10. Trading volume reached $404.00 million. The closing level is the weakest the peso has finished since Oct. 24, 2007, when the currency closed at P44.28 for every US dollar. Local currency traders said the weakness of the peso is being driven by an environment that is a 180-degree from last year's. However, the trader explained that the weakness of the peso is not completely due to a reaction to high prices. "The environment is a complete turn around. We have high inflation, weak growth, a strong dollar... this bodes for a weak peso," a Manila-based currency trader said. He said the weakness is also influenced by the corresponding strength in the US dollar, which was propped up by statements by US Federal Reserve chief Ben Bernanke that they may be hiking their interest rates to arrest the depreciation of the greenback. As a result of the statement, the dollar moved higher against even the Euro and the Yen in Asian trading. The Philippine government announced early Thursday that consumer prices galloped 9.6 percent in May, its fastest pace since January 1999, when it reached 10.5 percent. The trader said the central bank sold some of its dollars during trading in order to prevent the peso from further weakening. - GMANews.TV