The peso fell for a third day, moving toward 51 per US dollar, a level not seen in more than 10 years, amid investors’ jitters over another round of interest rate hike by the US Federal Reserve before the end of the year.
The peso shed seven centavos to close at 50.67 a dollar Thursday, from 50.60 a dollar Wednesday. It was the local currency’s weakest level in more than 10 years, or since it settled at 50.755 per greenback on Sept. 4, 2006. The peso fell to all time low of 56.34 a dollar in October 2004.
Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said the latest peso movement broadly reflected prevailing market conditions and underlying economic fundamentals, in line with the bank’s exchange rate policy. He said Bangko Sentral was actively managing excessive volatility, adding this was business as usual.
“A major driver is sentiment for a stronger US dollar as the Fed moves forward with steps to normalize from ultra-easy monetary policy as US economic conditions steadily improve. There is also growing policy convergence with Europe and even Japan,” Espenilla, who succeeded former Governor Amando Tetangco Jr., said in a statement.
University of Asia & the Pacific economist Victor Abola said the weakness of the peso could be traced to stronger imports which were putting pressure on the local currency.
Business Monitor International, a unit of Fitch Group, said the peso might close the year at 50.50 a greenback. It said the fragile political outlook in the Philippines and the expected additional rate hikes by the US Federal Reserve would put more pressure on the local currency.
BMI considered the Philippine peso one of the worst-performing currencies in Asia this year, having broken support at around 50 a dollar in mid-June.
It said while there was scope for further spot weakness over the coming months given rising real rates in developed markets, the peso was not expected to weaken excessively.
The Cabinet-level Development Budget Coordination Committee kept the peso-dollar exchange rate target at 48 to 50 a dollar this year and 48 to 51 a dollar in 2018 to 2022.
Finance Secretary Carlos Dominguez said the recent depreciation of the peso against the dollar would be positive for families of Filipinos working overseas and business process outsourcing companies.