Peso closes at 1-yr low as dollar surges

The peso slumped yesterday to its lowest level in nearly one year as the dollar continued to gain ground against most currencies in the region.

Analysts also said fears of inflation hitting new highs raised concerns of another hike in interest rates before the end of the year.

At yesterday’s trading at the Philippine Dealing System (PDS), the peso slipped back to the 46 to a dollar territory, closing at 46.290 to the dollar — its weakest finish since it closed at 46.390 to $1 on Sept. 17, 2007.

Total transaction amounted to $780 million on an average rate of 46.271 to $1.

Analysts said the market had growth concerns but foremost at this time were concerns over rising inflation which the market expects to soar to as high as 12.6 percent in August.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said that battling the red-hot inflation remained the top priority for the monetary authority since a lack of price stability would dampen an already slowing economic growth.

The central bank has raised rates by one percentage point in a tightening cycle that began in June. Analysts said it would remain hawkish since it has set its sights on ensuring inflation, which has been fired up by rising food and oil costs, is contained within targets in the next two years.

“If they are serious in bringing down inflation in 2009, they might need insurance moves and that may imply one or two more rate hikes,” said Jose Mario Cuyegkeng, economist at ING Bank.

“It depends on data and the outlook on commodity prices,” he said.

The next rate-setting meeting will be on October 9, giving the BSP time to study two months of official inflation data.

However, analysts said the slowing pace of economic growth would now weigh more on policy makers following data last week that showed annual economic growth in the second quarter was the weakest in about three years at 4.6 percent.

Although negative sentiments would torment the peso for a while yet, Tetangco had expressed optimism that recovering foreign exchange inflows would support a firm peso in the fourth quarter of the year and the central bank’s only concern was to keep volatility rates down.