Peso slips 28.5¢ on inflation fears

With the dollar gaining strength against regional currencies, the peso fell to 54.48 to the dollar yesterday as the market also anticipated a rise in domestic inflation that could lead to a surge in interest rates.

At the Philippine Dealing System (PDS), the peso opened weak at 54.40 to the dollar and quickly depreciated to a low of 54.485 despite a short rally that brought the currency up to an intra-day high of 54.29 to $1.

According to the Bangko Sentral ng Pilipinas, however, the peso was behaving within expected range especially considering the behavior of other regional currencies.

BSP Governor Rafael Buenaventura told reporters that the dollar itself was gathering strength so the peso’s depreciation did not stand out in the region.

"But the decline was partly offset by inflows," Buenaventura said. "It’s not an extraordinary drop."

According to Buenaventura, the peso would continue to track regional trends provided there would be no extraordinary events that could shake investor confidence anew.

Trading at the PDS was brisk, with $293.1 million worth of transactions recorded at the end of the whole-day session after a long Easter break.

According to traders, the peso may weaken further in the coming weeks.

"Most of us are expecting inflation rate to be high and that could be a signal that the Monetary Board would finally take action," said one trader.

Buenaventura admitted as much, saying that inflation rate is likely to be high in March due mostly to the continued increase in oil prices.

Moreover, Buenaventura said the BSP was watching developments in the labor and transport markets. "If there is a press for wage and transport fare hikes, that will certainly impact on monetary policy," he said.