The peso on Friday hit another 16-year low and nearly broke the 55-per-dollar barrier on hawkish signals from the US Federal Reserve of bigger and faster interest rate hikes in the coming months.
The peso closed at 54.985, weaker than 54.70 on Thursday. It was the lowest closing of the local currency since it settled at 55.08 on Oct. 27, 2005. Total volume turnover reached $1.401 billion, up from $1.061 billion on Thursday.
“The peso weakened after continued hawkish signals from Fed chair Jerome Powell, who reiterated that his commitment to fight inflation is unconditional and from Federal Reserve Governor Michelle Bowman, who supports raising Fed rates by +0.75 again in July 2022 and a few more +0.50 Fed rate hikes after that,” Rizal Commercial Banking Corp. chief economist Michael Ricafort said.
“For the week, the peso depreciated for the fifth straight week, by P1.235 or 2.3 percent [after the previous week’s peso depreciation of 0.75 or 1.4 percent],” Ricafort said.
He said that since the start of 2022, the peso depreciated against the dollar by P3.986 or 7.8 percent from 50.999 in end-2021. The next resistance level is at 55 psychological mark and then at 55.50, he said.
The peso touched 54.999 per dollar at one point of trading before settling at 54.985 at the close.
“The peso exchange rate would now be partly a function of the expected hike in local policy rates in the coming months; so far the signals/reiterations have been for a modest +0.25 rate hikes, despite the large +0.75 Fed rate hike on June 15, 2022, with more Fed rate hikes expected in the coming months, thereby narrowing the interest rate differentials in favor of the US,” Ricafort said.
He said the weaker peso exchange rate is inflationary, adding to the cost/price of imported oil/fuel/petroleum and other imported commodities/products, leading to some pickup in headline inflation as the Philippines is a net importing country.
“This would add to elevated prices of global oil/energy and other commodities being imported by the country, among multi-year/decade-highs recently,” he said.
The Monetary Board of the Bangko Sentral ng Pilipinas raised by 25 basis points the policy rate to 2.5 percent on Thursday.
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, down by 26.72 percent from P200.3 billion a year ago on double-digit revenue growth and 1.10-percent contraction in government spending.
This brought the budget deficit in the first five months to P458.7 billion, down 18.99 percent or P107.5 billion from the previous year’s outturn of P566.2 billion. Julito G. Rada