Peso breaches 56-level as dollar extends bullish run
MANILA, Philippines — The Philippine peso pierced through the P56-per-dollar level on Thursday, sinking to its lowest level in nearly 17 years as recession fears continue to send investors running to safe-haven US dollar.
The local unit finished at P56.06 against the greenback, weaker than its previous closing of P55.67. The peso’s worst showing for the day stood at P56.09.
Data showed this was the peso’s worst performance since closing at P56.295 versus the dollar on Sept. 27, 2005. A depreciating peso is becoming a big headache for the Philippines, which is already reeling from imported inflation as the ongoing war in Ukraine pushes up global energy prices.
So far, the dollar’s bullish run has been fueled by the US Federal Reserve’s aggressive rate hikes that are meant to cool down red-hot inflation stateside. Minutes from the Fed’s June meeting indicated that the US central bank could fire off a 0.5 or 0.75-percentage-point hike at their next rate-setting meeting on July 27, in a desperate bid to choke off rapid inflation.
Sought for comment, Nicholas Mapa, senior economist at ING Bank in Manila, believes the peso would sustain its slump if the Bangko Sentral ng Pilipinas would not match the Fed’s forceful actions. Last week, BSP Governor Felipe Medalla said the central bank “would clearly consider may be increasing policy rates by more than our planned 25 basis points” if the exchange rate is “overshooting too much”.
But with the next BSP meeting not happening until August 18, a deeper currency crash, Mapa said, may prompt central bank to hold an off-cycle meeting just to hike policy rates and arrest the peso’s decline, although this is something that could put the BSP in a bad light.
“We have argued previously that front-loaded rate hikes could be more effective during a rate hike cycle, especially if all signs point to accelerating inflation down the road,” Mapa said.
“Given the time-lag of policy rate adjustments, more forceful and early tightening would get the BSP ahead of the curve, re-anchor inflation expectations and hopefully quell uncertainty. Until the 18th of August however, the PHP may face additional pressure as the central bank awaits the chance to tighten further,” he added. — with Ramon Royandoyan
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