The peso sank to a new all-time low against the US dollar Friday as investors anticipated the US Federal Reserve and the local monetary authorities to increase interest rates in the coming days to tame the elevated inflation rate.
The peso lost P0.27 to close at 57.43 against the US dollar, down from 57.16 on Thursday. Total volume traded reached $900.66 million, slightly lower than $909.8 million a day earlier.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the peso weakened further “ahead of the US Federal Reserve and BSP [Bangko Sentral ng Pilipinas] rate-setting meetings next week amid expectations of a jumbo/large 0.75 to 1.00 Fed rate hike on Sept. 21, 2022 that favors the US dollars in terms of higher interest rate earnings.”
Ricafort said the peso also fell after the World Bank warned that the global economy might face a recession in 2022 on aggressive monetary policy tightening or interest rate hikes that could still be not enough to bring down elevated inflation.
He said the World Bank noted the “most synchronized rolling back of monetary and fiscal stimulus measures by central banks around the world in about 50 years.”
“The peso also weakened amid some POGO [Philippine offshore gaming operations]-related policy uncertainties, especially those allegedly involved in illegal activities may have also added to some market concerns as this could reduce POGO revenues and also reduce other business activities in the country,” Ricafort said.
Robert Dan Roces, chief economist of Security Bank, said there was a strong dollar demand at the start of the import season. Roces said the US dollar momentum “may be waning though ahead of the FOMC and BSP meetings next week.”
The Monetary Board, the policy-making body of the BSP, said it expected a wider balance of payment deficit this year of about $8.4 billion, up from its previous estimate of $6.3-billion shortfall, taking into consideration the further weakening of global demand.
The higher BOP deficit would be equivalent to around -2.0 percent of the gross domestic product.
“This development is due mainly to the projected further widening of the current account deficit to $20.6 billion [-5.0 percent of GDP] from $19.1 billion [-4.6 percent of GDP], owing to the sustained acceleration of goods imports alongside moderation of goods exports,” Sittie Hannisha Butocan, director of the BSP’s Department of Economic Research, said in an online briefing.
The Monetary Board approved the new set of 2022 and 2023 balance of payments projections in its Sept. 16, 2022 meeting. The current set of BOP projections incorporates the latest available data and recent emerging developments.
Butocan said the emerging BOP outlook over the near term remained subdued as external risks intensified relative to the last forecast round in June 2022. These risks of further downward revision in global growth prospects, record-high inflation print worldwide, more aggressive monetary policy tightening by major central banks, continued economic slump in China and lingering Ukraine-Russia conflict were expected to broadly weaken global demand conditions, and hence, the country’s external sector.
“In particular, these are expected to moderate the growth in merchandise exports and, along with increased imports, will result in a further widening of the goods trade gap,” she said.