MANILA, Philippines – The Philippine peso fell to its lowest level against the dollar in 7 years as it breached the P48 to $1 dollar mark on Monday, September 26.
The peso fell by P0.26 centavos to close at P48.25 to $1, amid political and security concerns on the local front, and the looming US Federal Reserve rate hike.
The result marks the weakest level the peso has been against the dollar since it hit P48.356 to $1 on September 16, 2009.
The peso closed last Friday, September 23, at P47.99 to $1. It then opened weaker on Monday at P48.07 before hitting an intra-day high of P48.05 and an intra-day low of P48.26.
Volume of trade was at $758.5 million on Monday compared to last Friday’s $419.8 million.
So far, this month, the peso has dropped by 3.5%. The trend began earlier in September after President Rodrigo Duterte declared a “state of national emergency on account of lawless violence” following a deadly bombing in Davao City on September 2.
The President has also made global headlines following tirades against US President Barack Obama and UN Secretary General Ban Ki-moon, prompting credit ratings agency Standard & Poor’s to issue warnings of political uncertainty.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr said, however, that the continued weakness of the peso is due to the uncertainties brought about by the next action of the US Fed as well as the strong demand for US dollars.
“The peso movement reflected the continuing uncertainty about the US Fed’s next policy action, just like other currencies, plus strong foreign exchange demand for fixing and corporate requirements,” he said.
In its latest meeting on September 21, the US Federal Open Market Committee chaired by Janet Yellen kept its key benchmark interest rate, saying that it needs to see more signs of recovery in the US economy.
But the Fed displayed confidence that the rebound would continue through the second half, and indicated that they foresee one quarter-point rate hike before the end of the year, and possibly two in 2017.
BSP to defend peso position
BSP Deputy Governor Diwa Guinigundo pointed out that despite the uncertainty surrounding the US Fed rate hike as well as the sluggish global economy, the country’s stable macroeconomic fundamentals should cushion the turbulence.
“Based on our sound market indicators, including the sustained external payments surpluses and significant gains in our dollar reserves, the peso should be firm. However, given both external and domestic factors driving market sentiment, soft patches have been seen in the foreign exchange market,” he noted.
Guinigundo added that “any concern about the sustainability of macroeconomic policy should be tempered by the fact that the same policies that have produced robust growth, low inflation and interest rates, sustainable fiscal position, and sufficient external buffers will be pursued by the Philippines in the next 6 years.”
That macroeconomic policy has also built up healthy levels of foreign reserves which hit a record high of $85.9 billion at the end of August.
Bank of the Philippine Islands (BPI) associate economist Nicholas Mapa said in an investor report on Monday that he expects the BSP to tap into the reserves.
“Beginning November 2010, we’ve seen the peso move within a very tight band as the BSP attempted to keep the peso in the comfortable middle. In times of excessive peso appreciation such as in 2012, the BSP held the deluge of foreign funds to keep the peso around the P40 to $1 mark,” he explained.
“Now that the peso has strayed, expect [the BSP] to be the good shepherd once more and look to stem the stark weakening trend of the peso to help guide it back to its comfortable middle.”
Mapa added that he expects the BSP “to resort to heavy [foreign exchange] presence in the next few weeks to keep the peso from straying too far from the proverbial middle of the regional pack.” – Rappler.com