Peso sinks past P52:$1 level for the first time since 2019, stoking inflation fears

The STAR / Miguel de Guzman, File photo

The last time the local currency traded at this level was back in September 2019, when the government’s ambitious infrastructure program pushed up demand for the greenback amid heightened importation of construction materials.

Ramon Royandoyan - Philstar.com

MANILA, Philippines — The Philippine peso dropped past the P52 barrier for the first time since 2019 on Monday as Russia’s invasion of Ukraine continued to prop up the US dollar, triggering inflation concerns amid already high oil prices.

The local unit shed 44 centavos from its previous finish to close at P52.18 against the greenback. Its worst showing for the day was at P52.19 versus the dollar.

Inflation steadies in February despite high oil prices

The last time the local currency traded at this level was back in 2019, when the government’s ambitious infrastructure program pushed up demand for the greenback amid heightened importation of construction materials.

As it is, the peso is trading within the Duterte administration’s P48-P53 average forecast for this year. The currency has fallen by 2.3% since the beginning of 2022.

Emerging market currencies like the peso have been one of the economic casualties of the ongoing war in Ukraine amid investor concerns over the escalating conflict in Europe which has sent global oil prices rallying to multi-year highs.

Worsening the capital flight was Federal Reserve Chair Jerome Powell’s statement last week that the US central bank may begin tightening this month. At home, dollars traded on Monday amounted to $1.6 billion from $793.2 million previously.

For Nicholas Antonio Mapa, senior economist at ING Bank in Manila, the currency slump could create a big problem for Filipino consumers. This, Mapa said, may force the Bangko Sentral ng Pilipinas to lift rates sooner even as it wanted to sustain its ultra-loose monetary policy for much longer to nurture a nascent economic recovery.

"Peso weakness will likely fan even more imported inflation. Inflation expectations also now becoming disanchored as the Bangko Sentral ng Pilipinas retains dovish tone amid a hawking Fed and now skyrocketing energy prices,” Mapa said.

“Case for BSP to hike to corral runaway inflation expectations cannot be more apparent,” he added.

Sonny Africa, executive director for nonprofit IBON Foundation, agreed with Mapa. "Half our energy comes from oil and virtually all our oil is imported so a falling peso greatly increases our oil bill and worsens inflationary pressures. Recovery will be even slower with accelerating inflation," Africa said in a text message. 

"Rising prices will dampen consumption spending already depressed by high joblessness and low incomes, and make it even harder for struggling businesses to stay afloat much less expand. Overseas remittance-receiving families will at least see some gain but this will likely not be enough to offset lockdown-driven depressed incomes across so much of the economy," Africa added.