The peso plummeted to a new 10-year low of 50.23 against the US dollar Monday, weighed down by the expected interest rate hike by the US Federal Reserve next month and geopolitical concerns in Europe.
The peso lost P0.23 to finish at 50.23 a dollar from Friday’s closing of 50 a greenback. It was the local currency’s weakest level since it settled at 50.23 on Sept. 26, 2006. Total volume turnover reached $723 million, higher than $532 million previously.
“The peso movement this morning tracked the softness in most regional currencies, and was also driven by risk-off sentiment amid geopolitical concerns, especially in Europe,” Bangko Sentral Governor Amando Tetangco Jr. said in a statement.
“As you know the BSP does not target any exchange rate level, but we continue to watch out for excessive market volatility,” Tetangco said.
Bangko Sentral Deputy Governor Diwa Guinigundo earlier said external market uncertainty was driving the weakness of the peso, particularly the anticipated rate hike by the Fed in March.
Guinigundo said in real terms, the peso remained competitive and Bangko Sentral was continuously monitoring the exchange rate.
ING Bank senior economist Joey Cuyegkeng said the peso remained under pressure although seasonal inflows in March could provide some strength.
The peso ended 2016 at 49.72 a dollar. Economists from First Metro Investment Corp. and University of Asia & the Pacific said the peso was estimated to trade at 51 a dollar this year.
A widening trade deficit hurt the value of the peso last year. Data from the Philippine Statistics Authority showed the country incurred a record trade deficit of $25 billion in 2016. This resulted in a balance of payments deficit of $420 million last year.
Bangko Sentral said the BoP position yielded another deficit of $9 million in January, although this was lower than the $813-million deficit in the same month last year.
The January deficit was also lower than the $214-million deficit in December 2016.
Bangko Sentral Deputy Governor Diwa Guinigundo said the January deficit was a carryover of the negative sentiment that was seen in December 2016.
“We don’t have yet the trade, services and financial components but the headline numbers indicate that debt payments by NG [national government] and FX [foreign exchange] operations of the BSP brought about the small deficit during the month,” Guinigundo said.
“Some partial offsets were seen in the NG FX deposits as well as BSP’s investments income from abroad. We expect a turnaround during the year on account of the country’s continued resilience and strong macroeconomic fundamentals,” Guinigundo said.
BoP summarizes the country’s economic transactions with the rest of the world, with a deficit indicating that foreign exchange payments exceed foreign inflows. A BoP deficit weighs on the value of the local currency and eats into the country’s gross international reserves.