Peso strengthens, breaks 45:$1 mark

MANILA, Philippines - The peso gained 24 centavos Friday, breaching the 45 to a dollar level for the first time in nearly two months since the Chinese central bank devalued the yuan amid talks the US Federal Reserve could further delay the much anticipated interest rate increase.

The peso closed at 45.87 to $1 from Thursday’s 46.11 to $1. It opened at 46 to $1 and hit an intra-day high of 45.85 to $1.

The local currency gained 90 centavos this week after closing at 46.77 to $1 last Oct. 2. This was the peso’s strongest level in two months since it closed at 45.755 to $1 last Aug. 10 or a day before the People Bank of China devalued the Chinese yuan.

ING Bank Manila senior economist Joey Cuyegkeng said there was some retracement of the peso from an earlier test of the P46 psychological support amid talks the Federal Market Open Committee (FOMC) could keep its near zero interest rates in the US on hold until the end of the year.

“Minutes of the FOMC meeting last month may provide some clues of how close the FOMC decision could have been in raising policy rates last September and of the likelihood of a December 2015 rate hike,” he said.

Cuyegkeng said a number of FOMC policymakers continue to warn the market a rate hike in 2015 especially market expectations of a March 2016 rate hike.

“Market takes a more cautious stance after the recent significant strengthening of the peso and other Asian currencies,” he said.

According to Cuyegkeng, the peso and other currencies and Asia has been strengthening since last week as “excessive pessimism has been soothed by revised forecasts showing still moderate economic growth in 2015 and 2016 for the global economy and for Asian economies and a soft landing for the Chinese economy.”

Likewise, the International Monetary Fund (IMF) slashed the projected global economic growth for this year and the next.

Amid the delay, the impending interest rate hike in the US would continue to bring uncertainties for the global market. “There are still risks ahead with the Fed rate hike still expected in the next six months,” Cuyegkeng said.

Diwa Guinigundo, officer-in-charge of the Bangko Sentral ng Pilipinas (BSP), said strong macroeconomic fundamentals including sustained gross domestic product (GDP) growth would allow the Philippines to survive the external shocks brought about by the US interest rate lift-off and the economic slowdown in China.

“Through all these happenings, the Philippines remains well positioned with its growth prospects and ample external space courtesy of comfortable foreign reserves, current account surplus and declining external debt to GDP ratios,” he said.