The peso on Monday pierced the 54-to-the-US dollar barrier, its weakest finish in 44 months, mainly on continued hawkish signals from the US Federal Reserve of further interest rate hikes in the coming months.
The peso closed at 54.065, weaker than the 53.75 per dollar last Friday. It was the local currency’s weakest level since it hit 54.08 on Oct. 15, 2018. Total volume traded stood at $1.015 billion, up from $962.5 million Friday.
Michael Ricafort, the chief economist of Rizal Commercial Banking Corp., attributed the peso’s further depreciation to the large 0.75 Fed rate hike on June 15, 2022.
Ricafort also cited the “continued hawkish Fed signals” of another 0.50 or 0.75 rate hike by July 27, as the US central bank signaled its determination to bring US inflation back to the 2 percent level with aggressive interest rate hikes that could risk an economic slowdown or even a recession.
“The peso also weakened after the recent increase in external debt data at $109.7 billion as of Q1 2022, with the external debt-to-GDP ratio at a nine-year high of 27.5 percent, but still among the lowest in ASEAN,” Ricafort said.
Ricafort said the possibility of having a 0.25 basis point hike in the local policy rate contributed to the weakness of the peso.
“Peso also [became] weaker after new COVID local cases increased to more than 600 per day, a new two-month high,” he said.
Last week, the US Federal Reserve raised the interest rate by 0.75 percentage points, the biggest rate increase since 1994, a move that economists said would lead to a stronger US dollar against global currencies.
Just 10 days ago, the peso breached the 53-per-dollar level on June 10, as financial markets expected a more aggressive rate hike by the US Federal Reserve.
In its latest macroeconomic assumptions, the inter-agency Development Budget Coordination Committee projected the peso-dollar exchange rate to range from 51 to 53 this year. From 2023 to 2025, the peso-dollar rate assumption was pegged at 50-53.
The peso closed 2021 at 50.999 against the US dollar, significantly weaker than the 48.023 on the last trading day of 2020.