The peso sank to a new record low for the fifth straight trading day on Thursday, losing 4.5 centavos to close at P57.18 to the US dollar following the release of dollar reserves data for the month of August.
The local currency dropped from Wednesday’s finish of P57.135 to $1, which came after data released by the Bangko Sentral ng Pilipinas (BSP) showed that gross international reserves (GIR) stood at $98.975 billion as of August, down from $99.838 billion in July and marking a new two-year low.
Yesterday’s close brought the peso down by P6.181 against the dollar or by 12.1% year-to-date, which Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael Ricafort warned it could lead to higher inflation and more aggressive policy tightening in the country.
The peso opened the day at 57.07 and traded between 57.22 and 57.06.
The average level for the day stood at 57.14. The trading volume went down to $1.15 billion from the previous day’s $1.23 billion.
Ricafort said the continued weakness of the peso is expected to result in a higher inflation rate and sustained hikes in the BSP rate “to help stabilize both the peso exchange rate and overall inflation.”
He said expectations for a similar trend in the Federal Reserve’s key rates to address the four-decade high consumer price index (CPI) is also seen in higher US Treasury yields.
Ricafort said the US 10-year Treasury yield is still at its 2.5-month high at 3.26 percent and this “also supported sentiment on the US currency in terms of higher US interest rate income recently.”
Officials of the Federal Reserve have maintained a hawkish stance, with Chair Jerome Powell signaling tight monetary policy “for some time” until inflation is controlled.
Ricafort forecasts the peso to trade between 57.05 to 57.25 to a US dollar on Friday.
Inflation clocked in at 6.3% in August, slightly slower than the 6.4% in July but still faster than the central bank’s target range of 2.0% to 4.0%.
BSP Governor Felipe Medalla already earlier signaled the possibility of more policy tightening, as food supply and petroleum prices would first have to be addressed before a pause can be considered.
He added, however, that inflation in the United States has shown signs of decelerating, which could lead to a downward correction in the US dollar against major global currencies.