The peso on Friday strengthened against the US dollar, gaining P0.21 after the Bangko Sentral ng Pilipinas raised interest rates by another 50 basis points to 4.5 percent to temper inflation and address excessive exchange rate volatility.
The peso closed at 54.02 from 54.23 on Thursday. It was its strongest finish in a week since 54.04 on Sept. 21.
BSP Deputy Governor Chuchi Fonacier said the board agreed a tighter monetary policy stance would help steer inflation toward a target-consistent path over the medium-term by reducing further risks to the inflation outlook, including those stemming from exchange rate volatility given the continued uncertainty in the external environment amid geopolitical tensions and the normalization of monetary policy in advanced economies.
The peso has been posting multi-year lows against the US dollar the past few days due to the country’s widening trade deficit and the escalating trade war between the US and China. The peso’s weakest finish this year was 54.325 on Sept. 26, 2018.
ING Bank data showed that the local currency had depreciated by 8.23 percent against the US dollar since the start of the year.
The country’s balance of trade-in-goods’ deficit in July widened by 171 percent to $3.55 billion from $1.31-billion deficit a year ago as imports jumped by 31.6 percent while exports barely grew by a dismal 0.3 percent.
The figure brought the trade deficit in the first seven months of the year to $22.49 billion, significantly higher than $13.055 billion a year ago.
Prakash Sakpal, ING Bank Asia economist, said in earlier report remittances were insufficient to cover the trade deficit on a sustainable basis and the current account in deficit.
“… This isn’t a long-term positive for the Philippine peso,” Sakpal said.
Money sent home by Filipinos working overseas in July 2018 rose 5.2 percent to $2.401 billion from $2.283 billion a year ago driven mainly by sustained growth in remittances both from sea-based and land-based workers, the Bangko Sentral ng Pilipinas said. The July expansion was a turnaround from the 4.5-percent decline in June 2018.
The figure brought cash remittances in the first seven months to $16.58 billion, up 3 percent from $16.095 billion a year ago. Cash remittances from land-based and sea-based workers totaled $13.1 billion and $3.5 billion, respectively.