Peso slumps to record low, breaches 62:$1

MANILA, Philippines — The peso broke past the 62-per-dollar barrier for the first time yesterday, sinking to a fresh record low as markets digested the Bangko Sentral ng Pilipinas (BSP)’s latest policy signals while a strong dollar and elevated oil prices continued to weigh on the currency.

Data from the Bankers Association of the Philippines showed the peso depreciated by 37.7 centavos to close at 62.265 per dollar from Thursday’s previous record-low finish of 61.888.

The local currency opened at 62.05, briefly strengthened to 62, then weakened to as much as 62.27 during the session, its weakest intraday level on record, before settling at the close.

Trading activity also picked up, with total volume rising by about 9.6 percent to $1.96 billion from $1.79 billion in the previous session.

A trader attributed the sharp depreciation partly to what the market viewed as a dovish rate hike from the Monetary Board. This means the BSP raised interest rates but was perceived as signaling limited appetite for additional increases in the near term.

The trader pointed to BSP Governor Eli Remolona Jr.’s remarks expressing hope that further rate hikes would no longer be necessary, although the central bank has maintained that it remains prepared to tighten monetary policy if needed to bring inflation under control.

Higher interest rates generally help support a currency by making peso-denominated assets more attractive to investors. Expectations that the BSP may be nearing the end of its tightening cycle can therefore reduce some of that support, particularly when US interest rates remain high.

Another trader said the breach of the 62-level could prove significant for near-term trading, as the market tests whether the level would hold.

“The breach of 62 is important because the market may now test whether 62 becomes the new floor rather than the ceiling,” the trader said.

“The BSP may step in to smooth excessive volatility, but the bigger concern is if prolonged peso weakness starts feeding into inflation. For now, the peso remains vulnerable to a strong dollar and high oil prices,” the trader added.

A persistently weaker peso can add to inflation by raising the local cost of imports, particularly petroleum products.

The BSP has repeatedly stressed that it does not defend a particular exchange rate level, but intervenes in the foreign exchange market to prevent sharp and disorderly movements that could worsen inflation pressures.