The peso fell to a six-year low Monday, losing 0.5 percent to close at 47.16 against the US dollar, as the possibility of US Federal Reserve increasing interest rate before the end of the year boosted the greenback.
Data showed the peso lost P0.22 from Friday’s closing of 46.935 against the greenback. It was the local currency’s weakest level since settling at 47.195 on Oct. 22, 2009. The peso also lost 5 percent since the start of the year.
“[The peso’s decline was caused by the] very strong payrolls number [in the US] last Friday and thus the chances for a December Fed [interest rate] hike is pushed up to 68 percent from 50 percent,” Nicholas Antonio Mapa, research officer of the Bank of the Philippine Islands, said in an e-mailed statement.
The Bureau of Labor Statistics reported that non-farm payrolls in the US grew 271,000 in October, a significant improvement from the sluggish 153,000 in August and 137,000 in September.
The Federal Reserve has been closely monitoring the jobs data, looking for signs on the strength of the US economy. Experts believed that the strong non-farm payrolls data could add pressure for an interest rates hike before the end of the year and boost the greenback against most currencies.
Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo, however, said the weakness of the peso was unwarranted, given surpluses in the current account and balance of payments.
“How can one have a continuously depreciating currency when your balance of payments is in surplus, when your current account is in surplus?” Guinigundo told bond traders at a Nov. 7 conference in Cebu, south of Manila.
“Negative sentiment brought about by offshore factors is more dominant than actual market fundamentals that should really support a stable currency,” he said.
Emerging nations are grappling with an impending increase in US interest rates, which is complicating their monetary policy as central banks seek to support growth while guarding against capital outflows.
Bangko Sentral ng Pilipinas will probably hold its benchmark rate this week at 4 percent, according to a Bloomberg survey, extending a pause after raising borrowing costs in 2014.
Market participants shouldn’t be nervous about the availability of dollars or pesos “when the Federal Reserve finally lifts interest rates,” Guinigundo said.
“There is so much liquidity in the system,” he said.
Rising inflows from remittances and business process outsourcing contribute about $50 billion a year, Guinigundo said, helping boost reserves, which rose to a 22-month high in October.
The balance of payments will likely meet a goal of a $2-billion surplus this year, he said.
Money sent home from overseas Filipinos will probably meet targeted growth of 5 percent this year and next, the deputy governor said, with the funds increasing to $26.8 billion in 2016. Earnings from business process outsourcing or BPOs are forecast to rise between 15 percent and 25 percent a year with the annual value increasing to at least $25 billion next year, he said. With Bloomberg