The Philippine peso depreciated further against the US dollar for the third straight day on Thursday to close at the P56:$1 level, marking its weakest performance in over 16 years.
The local currency lost 39 centavos to close at P56.06:$1 from Wednesday’s finish of P55.67:$1.
The latest close is the weakest since September 27, 2005’s finish of P56.295:$1, and is nearing the record-low of P56.45:$1
Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort attributed the peso’s weakness to the drop of the country’s gross international reserves.
“The decline in the [gross international reserves] somewhat correlated with the weaker peso in recent months,” Ricafort said in a mobile message.
Latest data available from the Bangko Sentral ng Pilipinas (BSP) showed that the Philippine dollar reserves lost 1.7% to $103.53 billion as of end-May, or the weakest since September 2020.
The central bank said the month-on-month decrease in the GIR level reflected the withdrawals of the national government from its deposits with the BSP to settle its foreign currency debt obligations, and for payment of other expenditures.
“Peso also weaker amid stronger US dollar vs. major global currencies recently after hawkish signals from the latest Fed/FOMC minutes on Fed officials' commitment to more aggressive/restrictive monetary tightening,” Ricafort said.
His remarks were echoed by ING Bank Manila senior economist Nicholas Antonio Mapa, who said the greenback saw demand given concerns on recession and more policy hikes in the United States.
“Broad USD strength has dominated trading this week as investors seek safe haven on recession fears. As such, most emerging market currencies have weakened sharply against the USD,” he said in an emailed commentary.
“The dollar was also boosted as it looks like the Fed is determined to tighten policy in order to snuff out inflation in the US,” he added.
Mapa added that the Philippine peso has underperformed among its peers in emerging markets, and has declined by over 5% against the US dollar since June 10.
The Federal Reserve has signaled more policy rates and hinted at the possibility of a 75-basis-point hike in its next meeting, while the BSP has raised rates by only a total of 50 basis points so far.
“This dynamic of a dovish BSP against the backdrop of a hawkish Fed has the PHP on the backfoot and testing and breaching resistance levels,” Mapa said.
“A battered currency could spark an emergency meeting for the BSP where they would hike ahead of schedule, although such a move may not be viewed favorably by market participants,” he added.
Mapa also added that a “front-loaded” rate hike could have been more effective, especially if “all signs point to accelerating inflation down the road.”
Moving forward, Mapa said the local currency could continue to face additional pressure until August 18 when the Monetary Board of the BSP meets to discuss monetary policy.
Fitch Solutions Country Risk and Industry Research earlier on Thursday downgraded its outlook on the Philippine peso, which it now expects to average P54.30:$1 this year versus its previous outlook of P52.30:$1.
It is expected to weaken even further in the coming year, with the 2023 outlook revised to P56.40:$1 from P53.00:$1 it earlier projected. — BM, GMA News