The peso tumbled to 50 per US dollar Wednesday, the lowest in six weeks, as financial markets reacted negatively to President Rodrigo Duterte’s declaration of martial law in Mindanao and Moody’s Investor Service’s downgrade of the credit rating of China.
The peso lost P0.17 to close at 49.995 against the greenback Wednesday from 49.82 Tuesday. It was its weakest level since it settled at 50.08 a dollar on April 7, 2017. Volume turnover reached $582 million Wednesday, higher than $572 million Tuesday.
The peso touched the 50-level per greenback in the afternoon before settling at 49.995 at the close.
ING Bank Manila senior economist Joey Cuyegkeng said the local currency’s weakness and underperformance”•relative to other Asian currencies”•was a combination of the martial law declaration and Moody’s downgrade of China.
“Financial markets impact likely to be limited and calm likely to return after the initial reaction. The problem is that markets are also affected by the surprise Moody’s credit rating downgrade of China by one notch this morning,” Cuyegkeng said.
Cuyegkeng said the country’s solid macroeconomic fundamentals would sustain economic growth and provide needed support to the peso.
“We believe that favorable Philippine economic fundamentals would remain intact and would keep growth in line with an expected higher trend growth of 6.5 percent during this administration [from 6-6.2 percent in the previous administration],” he said.
“Investor interest in that part of Mindanao would likely be affected but government’s lead through infrastructure spending and programs in Mindanao would likely offset overall private sector prudence and cautiousness for that area,” he said, adding that “fundamentals would take hold and support the peso.”
Moody’s, one of the major credit rating agencies in the world, downgraded China’s long-term local and foreign currency issuer ratings by one notch to A1 from Aa3, citing expectations that its financial strength would decline in the years ahead.
Moody’s also said China was facing the challenges posed by slowing economic growth and rising financial risks due to soaring debt. China is one of the Philippines’ biggest trading partners in the region.
President Duterte declared the entire island of Mindanao under Martial Law after heavy fighting broke out between government troops and alleged members of the terrorist Maute group.
Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the declaration of martial law might result in some transitory or temporary cautiousness, “but in the end I think it will lead to a positive impact on sentiment.”
“I think it’s a very decisive move in the part of the government, and the main objective is really to improve the security and peace and order situation,” Tetangco said.
Cuyegkeng said the declaration of Martial Law in Mindanao was “an overkill” and a declaration of state of emergency might be more appropriate. He said the declaration implied that government had lost control of the situation in Mindanao when in fact the incident was isolated.
Cuyegkeng said Duterte’s intentions for declaring martial law were likely “to give him more leeway to address the overall peace and order situation in the island including activities of not only extremist groups but likely also to address activity of the armed wings of the communist party.”
Cuyegkeng said the incident was isolated in Marawi City and was unlikely to blow out in Mindanao and more so unlikely to spread to central and northern Philippines.