The peso resumed its decline against the US dollar Monday despite the Bangko Sentral ng Pilipinas’ assurance that it is ready to take strong immediate actions to address excessive exchange rate volatility and temper inflation.
The local currency lost P0.15 to close at 53.88 against the greenback from 53.73 Friday. It was the local currency’s weakest finish in nearly 13 years, or since it settled at 53.985 a dollar on Dec. 7, 2005. Total volume traded reached $435 million Monday, down from $957 million Friday.
Japanese financial firm Nomura said the Bangko Sentral was expected to increase the interest rate by additional 50 basis points until December, after a total of 100-bps adjustment since the start of the year.
“Real rates are negative due to rising inflation, which accelerated this year, to which Bangko Sentral ng Pilipinas has responded with more aggressive rate hikes,” Nomura said.
A higher interest rate is expected to counter the rising inflation and the falling peso. The overnight borrowing rate currently stands at 4 percent, below the 6.4 percent inflation registered in August.
Bangko Sentral Governor Nestor Espenilla Jr. also announced the reactivation of the Currency Risk Protection Program to temper the local currency’s fluctuation. Introduced in December 1997, the CRPP is a non-deliverable forward hedging facility which is aimed at alleviating demand pressures in the foreign exchange spot market from borrowers seeking to hedge their future foreign exchange exposures.
Under the facility, parties agree that on the maturity of the forward contract, only the net difference between the contracted forward rate and the spot rate will be settled in pesos. The BSP will make the
CRPP available to eligible borrowers through the commercial banks.
Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the country had enough reserves to withstand the impact of the surging dollar. “I think we have enough buffers that can support the peso against the US dollar,” Guinigundo said.