The peso sank to a new 11-year low against the US dollar Friday, pulled down by the widening trade deficit and developments overseas, including the possibility of another rate hike by the US Federal Reserve and the terrorist attacks in Barcelona, Spain.
The local currency shed P0.13 to close at 51.49 against the greenback Friday from 51.355 a dollar Thursday. It was the peso’s weakest finish in 11 years, or since it settled at 51.60 a dollar on Aug. 24, 2006.
Total volume turnover rose to $1.006 billion Friday from $688 million Thursday.
“We expect market to trade range with a slight higher bias due to risk-off sentiment in the market after the terrorist attack in Barcelona,” Security Bank Corp. said in its daily market report.
Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr., however, downplayed any concerns about the weakening peso, saying the country’s macroeconomic fundamentals remained strong.
“[The] peso is market determined. It will move up then down. It will not free fall… It will take care of itself because the economic fundamentals are strong,” Espenilla told reporters at the sidelines of an event in Mandaluyong City.
Thirteen people were killed and 100 were injured in Spain, when a man drove a van into pedestrians in Barcelona. Later, a second terror attack took place in Cambrils, a coastal town around 120 km from Bacelona.
Espenilla said the peso was capable of correcting itself as the market calmed down and digested the relevant information that was affecting it.
“Moreover, the BSP will always be there strategically if volatility is considered excessive. We have a huge pile of FX [foreign exchange] reserves to play an effective stabilizing role,” Espenilla said.
He said it would be natural for an emerging economy such as the Philippines to run a current account deficit. “It is natural for it to run moderate current account deficits. In fact, it is sub-optimal for it to be persistently running current account surpluses,” he said.
Espenilla also mentioned the recent observation by the International Monetary Fund that the Philippine economy was not overheated and was actually doing well.
Espenilla said monetary authorities remained vigilant. “Let us calm down. We are on the right track,” Espenilla said.
The peso became Asia’s worst-performing currency this year. Finance Secretary Carlos Dominguez told Bloomberg TV this week losses were likely temporary as the underlying economy was in a “sweet spot.”
Espenilla, meanwhile, said companies should heed warnings from the currency market and avoid too much foreign borrowing.
But the Federal Reserve’s plans to scale back its balance sheet don’t bode well for emerging-market currencies, and with the Philippines poised to post its first annual current account deficit in 15 years, a weakening currency only adds to that vulnerability.
Espenilla won’t be able to avoid a rate hike, according to Australia & New Zealand Banking Group Ltd. With Bloomberg