29 Jun Peso sinks to P55-a-dollar level
THE peso sank to the P55-a-dollar level on Wednesday — its weakest in more than 16 years — amid fears of a recession in the United States and after officials of the US Federal Reserve said they would try to bring inflation within target.
The local currency closed at P55.06 a dollar, weakening by 29 centavos from its P54.77 close on Tuesday, according to data from the Bankers Association of the Philippines posted on its website. It was its weakest level since it closed at P55.26 on Oct. 25, 2005.
The Bangko Sentral ng Pilipinas (BSP) might consider bigger interest rate hikes to support the peso, though it would not be obliged to match policy tightening by the US Fed, incoming Governor Felipe m. Medalla told a news briefing.
“If we see that the exchange rate is overshooting too much and that selling forex will not make the problem go away we would consider maybe increasing policy rates more than our planned 25-basis-point hike,” he said.
The peso opened the session at P54.90 a dollar and weakened to as much as P55.10. It rose to as much as P54.88 a dollar during the day. Volume went down to $1.27 billion from $1.65 billion a day earlier.
Zeno Ronald R. Abenoja, managing director of the Philippine central bank’s Department of Economic Research, traced the peso’s weakening to normalized monetary policy rates in the US and other advanced economies.
“Investors move their money to the US when interest rates there increase,” he told One Balita Pilipinas in Filipino. “As the dollar strengthens, other currencies weaken.”
The US Federal Reserve hiked its benchmark policy rate by 75 basis points (bps) and has signaled more increases at its future meetings to cool down inflation.
The US consumer price index rose by 8.6% in May, the fastest since December 1981. This caused renewed concerns that the Fed’s aggressive action could dampen growth prospects for the world’s largest economy.
Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. said the peso depreciated as New York Fed President John T. Williams and San Francisco Fed President Mary C. Daly promised further interest-rate hikes on Tuesday.
“We need to move expeditiously,” Mr. Williams told CNBC. “In terms of our next meeting I think 50 (bps) or 75 is clearly going to be the debate.”
Ms. Daly said she expects the economy to slow but not stop growing.
“Many are worried that the Fed might be acting too aggressively and maybe tip the economy into recession,” Ms. Daly said in an interview on LinkedIn. “We are working towards that as quickly as we possibly can, and hopefully Americans everywhere will start to see some relief in their pocketbooks.”
“The peso weakened as recession concerns prevailed following the sharp decline in the US consumer sentiment report,” a trader said in an e-mail.
US consumer sentiment hit a new record low in June amid growing concerns about inflation, according to a closely followed University of Michigan survey released on Friday.
Inflation remained the biggest concern for consumers, with 47% of them blaming the rising prices for their worsening living standards.
“The local currency might weaken further ahead of Fed Chairman Jerome H. Powell’s speech tonight,” the trader added.
Mr. Ricafort expects the peso to trade at P54.85 to P55.10 on Thursday. — Keisha B. Ta-asan with Reuters