Peso takes a beating against dollar

Philippine peso had its worst day in three-and-a-half years, falling to P53 to the United States dollar. File Photo

 

By Mayvelin U. Caraballo, Manila Times

June 11, 2022

(UPDATE) THE Philippine peso had its worst day in three-and-a-half years, falling to P53 to the United States dollar on Friday.

The local currency bled 5 centavos to $53:$1 from the previous day's close of P52.95. It hasn't been this soft since Dec. 20, 2018, when it closed at 53.10:$1.

The peso's slide was probably due to market participants anticipating the US Federal Reserve's (Fed) 50-basis-point interest rate hike next week, Domini Velasquez, chief economist at China Banking Corp., said.

"Generally, we still see USD-PHP (dollar-peso rate) moving upwards both because of the Fed's aggressive monetary tightening cycle and domestically, the value of import purchases are still bound to increase as oil and food prices continue to remain elevated. Hence, still more demand for dollars," Velasquez said.

ING Bank Manila senior economist Nicholas Antonio Mapa said the peso was simply following the trend among regional currencies.

US inflation becoming everyone's problem.

"Hawkish tilt from the ECB (European Central Bank) and a likely similar stance from the Fed keeping Asian currencies on the backfoot. Markets await US inflation out later tonight for more direction," Mapa said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the recent increase in US Treasury rates to above 3 percent for most long-term tenors contributed to the dollar's recent rise against key global currencies.

"Market sentiment also weighed as global crude oil prices posted new 3-month highs recently and also near 14-year highs, at above US$120 per barrel recently, that could potentially add to elevated inflation and could also add to the country's oil import bill," Ricafort said.

He also said the peso has recently depreciated slightly against the US dollar due to signs of a probable reduction in large banks' reserve requirement ratio later this year.

But the depreciation has been countered by the possibility of more local policy rate hikes during the next rate-setting sessions in June and August this year, Ricafort said.

Friday's close already hit the upper end of the government's P50-53:$1 peso-dollar exchange rate forecast for the year.

The Development Budget Coordination Committee said various depreciation (for example, US policy normalization, the Russia-Ukraine conflict, and widening trade gaps) and appreciation pressures (higher foreign exchange inflows via tourism, business process outsourcing and overseas Filipino workers remittances, and ample foreign exchange reserves) continue to influence the peso's medium-term outloo