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Peso plunges further to 16-year low

The Philippine peso continued to depreciate against the US dollar for the fourth straight session on Thursday, marking its weakest performance in over 16 years.

The local currency lost 23 centavos to close at P54.7:$1 versus Wednesday’s finish of P54.47:$1. This is the worst performance of the peso since November 21, 2005, when it closed at P54.74:$1.

Rizal Commercial Banking Corp. Chief Economist Michael Ricafort attributed Thursday’s depreciation to the indications of more possible rate hikes in the country moving forward.

“The peso exchange rate again weaker… amid consistent relatively dovish signals / reiteration of gradual +0.25 local policy rate hike in the coming months amid more bigger and faster Fed rate hikes recently and the coming months,” he said in a mobile message.

“Thereby making interest differentials in favor of the US dollar versus major global / Asian / ASEAN currencies that also weakened versus the US currency as a result,” he continued.

The central bank on Thursday hiked the key policy rates by 25 basis points for the second straight month, as it said that inflation risks remain tilted to the upside moving forward.

The Federal Reserve just last week announced its most aggressive interest rate increase in nearly three decades, noting that it is prepared to do so again in its next meeting.

Ricafort said the market also took into consideration the recent remarks by Fed Chair Jerome Powell regarding risks of recession due to the more aggressive Fed rate hikes.

“Peso also weaker after the PSEi again declined, to new lows since October 19, 2020,” he continued.

The main PSEi shed 102.77 points or 1.67% to close at 6,065.23, while the broader All Shares index dropped 43.62 points or 1.31% to 3,284.73.

“Philippine shares tumbled in choppy trading as investors weighed the likelihood of a recession after Fed Chair Jerome Powell acknowledged that achieving a soft landing without a recession has become ‘significantly more challenging’,” he said in a separate mobile message.

“Portfolio managers were also speculating how the BSP would react to inflationary pressures, as they just released that they will be raising policy rates by 25 basis points to 2.50% right after market closed,” he continued.

For his part, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco Dakila Jr. said that on a year-to-date basis, the peso has averaged P51.98:$1, which is still within the P51:$1 to P53:$1 assumption of the Development Budget Coordination Committee (DBCC).

“We can see that the recent weakening of the peso along with other currencies in the region is consistent with the more aggressive monetary policy normalization in advanced economies, particularly that by the US Fed,” he told reporters in a briefing.

Dakila said the peso depreciation is impacted more by external factors, noting that the peso is in the middle of the regional peers in terms of its performance against the dollar.

“You can see that this is more a strong dollar phenomenon rather than something that is attributable to domestic considerations. Again, it’s a balancing act and we continue to look at not just one indicator but in a broad range of indicators,” he explained. — RSJ, GMA News