The peso fell to a new 12-year low against the US dollar Wednesday, after the government announced that inflation rate climbed to a nine-year high of 6.4 percent in August.
The peso lost two centavos to close at 53.55 against the greenback Wednesday from 53.535 Tuesday. It was the local currency’s weakest finish in over 12 years, or since the same rate of 53.55 a dollar on June 29, 2006. Total trade volume reached $1.38 billion, higher than $440 million a day earlier.
Security Bank Corp. said in a report ahead of the release of the consumer price index that the market was “cautious of the 53.55 level” and that the “market will also be watching for CPI data.”
Data from the Philippine Statistics Authority showed that the August inflation accelerated to 6.4 percent in August from 5.7 percent in July, a situation that could compel the policy-setting Monetary Board of the Bangko Sentral ng Pilipinas to consider further monetary policy action in its next meeting later this month.
Despite the 100-basis-point adjustment this year, the Bangko Sentral’s overnight borrowing rate of 4 percent is currently below the inflation rate.
Data from the PSA showed that the faster uptick in consumer prices was driven by sustained increases in the prices of food, transport and tobacco products. The August inflation was the fastest in more than nine years, or since the 6.6 percent in March 2009. This brought the average inflation in the first eight months to 4.73 percent, beyond the official target range of 2 percent to 4 percent for the year.
Peter Lundgreen, the chief executive of Copenhagen-based investment advisory firm Lundgreen’s Capital, said the peso could end 2018 at 55 against the US dollar.
“Since the start of this year, we forecasted that the peso-dollar should reach 55. And there is no reason to change that. I think this is where we could be at yearend. Part of the explanation this year is that the dollar, in general, has gone up, not only against the peso. But there is also some capital outflow from the Philippines,” Lundgreen said earlier.
Lundgreen said the tightening liquidity in the US would further affect Asian emerging markets such as the Philippines. “Based on last year, the Philippine central bank was behind the curve. So what the central bank has done so far with 100 basis points [increase] is just to compensate for what was missing at the maximum. But the US central bank has hiked as well this year. There are still hikes to come, to follow,” he said.
“If they want to show sort of they are on top of things, the work is not done yet,” Lundgreen said.
ING Bank Manila senior economist Joey Cuyegken said he expected the peso to close the year at 53 against the greenback. He said the continued hawkish BSP stance to match Fed tightening would likely see the local currency closer to P53 by year end.
“However, an extended period of EM [emerging market] risk-off sentiment would keep PHP under pressure. But a combination of such inflows, hawkish BSP, and BSP’s direct intervention [also due to additional government foreign denominated bond issuance that keeps FX reserves equivalent to seven months of imports of goods and services] would be needed to keep the peso from weakening beyond P53.55 area,” Cuyegkeng said.
Philip Wee, foreign exchange strategist of DBS Group Research, said in an earlier report that Asian currencies were facing depreciation pressures because of monetary policy divergences that had supported the US dollar globally.
The US central bank increased interest rates middle of the year and signaled that more increases were on the way this year.
DBS Bank of Singapore predicted that the peso might depreciate further to 54 per US dollar amid the ballooning trade deficit.
Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. downplayed the peso’s current level, saying the “FX market is naturally volatile.”
The peso closed 2017 at 49.93. It hit an all-time low of 57 per dollar in August 2004.