The peso neared the 55-per-dollar mark Thursday, the lowest in over 16 years, as the 25-basis-point adjustment in the Bangko Sentral’s interest rate failed to draw the interest of investors in the local market.
The peso shed P0.23 or 0.4 percent to close at 54.70 against the greenback on Thursday, down from 54.47 on Wednesday. It was its weakest level in more than 16 years, or since Nov. 21, 2005 when it settled at 54.74.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the peso’s weakness was driven by consistent relatively dovish signals of a gradual 25-basis-point local policy rate hike in the coming months amid bigger and faster Fed rate hikes, “thereby making interest differentials in favor of the US dollar vs major global/Asian/Asean currencies that also weakened against the US currency as a result.”
The Monetary Board of the Bangko Sentral ng Pilipinas on Thursday raised by another 25 basis points the policy rate to 2.5 percent, taking into account the rising inflation rate.
Ricafort said the acknowledgement of Fed chairman Jerome Powell on recession risks due to more aggressive rate hikes also weighed on market sentiment.
Ricafort said the latest budget deficit data also contributed to the decline of the peso. Data showed that the government incurred a budget deficit of P146.8 billion in May 2022, down by 26.72 percent from P200.3 billion a year ago mainly because of the 1.10-percent contraction in government spending.
Ricafort said the next resistance level for the peso would be the 55-per-dollar mark.
Bangko Sentral ng Pilipinas officials were unfazed by the movement of the peso, saying it remained in the middle of the pack of regional currencies.
“The peso’s weakness is due to a strong US dollar phenomenon, rather than something attributable to domestic considerations,” BSP Deputy Governor Francisco Dakila said during the online policy meeting briefing Thursday. Julito G. Rada
“The thing is that as forces tend to weaken the peso, there are other factors that provide support to the currency and these are structural sources of foreign exchange, including overseas Filipino remittances and the business process outsourcing sector,” Dakila said.
The peso has weakened against the greenback since the aggressive 0.75-basis point hike in the policy rate by the US Federal Reserve last week, the biggest adjustment since 1994. Economists earlier said this would lead to a stronger US dollar against global currencies.