Peso sinks past 63:$1 for the first time
Expectations of higher US interest rates bolstered the greenback and dragged the Philippine peso past 63 per dollar for the first time on Thursday, putting the spotlight on how the Bangko Sentral ng Pilipinas (BSP) will respond to stubbornly high inflation and currency volatility.
The peso lost 19 centavos from its previous finish to close at 63.06 versus the dollar, data from the Bankers Association of the Philippines showed. This surpassed the previous all-time low closing of 62.9 set on Oct. 8.
The local unit hit an intraday low of 63.15 before paring some of its losses. Total trading volume rose to $1.5 billion, from $941 million in the prior session.
The dollar index, which measures the greenback against a basket of major currencies, slipped from an 18-month peak on Thursday as cautious remarks from Federal Reserve (Fed) officials and a pullback in US Treasury yields tempered expectations of an interest rate hike in October, Reuters reported. This was even as inflation in the US rose to 3.7 percent in September, above forecasts.
Still, a trader said expectations of another Fed rate hike are still alive and continued to weigh on the peso, which has been under pressure from high global oil prices as well.
“The move was particularly driven by the stronger-than-expected US consumer price index report overnight,” the trader said. “The release revived market expectations that the Fed might consider a rate hike by the end of the month.”
Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, expects the bearish sentiment on the peso to persist.
“Moving forward, the peso may remain volatile and generally biased toward weakness, although any signs of easing US inflation, a less hawkish Fed, or firmer BSP policy support could temper volatility of the exchange rate,” Asuncion said.
The BSP raised its benchmark interest rate by a quarter percentage point in August to 5 percent, its third increase in the current tightening cycle. The central bank described the move as a preemptive response to emerging inflation risks.
Yet higher Philippine interest rates have done little to stem the depreciation of the peso, which has slid well beyond the 60-to-62-per-dollar range assumed by the Marcos administration for this year.
BSP Governor Eli Remolona Jr. has said the central bank does not defend a particular exchange rate, allowing market forces to determine the peso’s value while intervening only to curb excessive volatility that could stoke inflation.
The country’s gross international reserves, which the BSP can use to temper large swings in the spot foreign exchange market, remained ample at $99.99 billion as of September, although that was already the lowest level in three years.
The central bank will decide on its next policy move on Oct. 22.
“(I’m) expecting the peso to remain volatile and quite tilted on the weaker side as the BSP already entered its quiet period for next week’s meeting, leaving domestic market participants uncertain as to how the BSP will react to this latest development,” a trader said.
******
Get real-time news updates: inqnews.net/inqviber
