MANILA — The peso recovered some ground and closed at P62.97 to the US dollar on Friday, after hitting yet another record low during intraday trading.
The local currency weakened to a record intraday low of P63.23 just a day after depreciating to P63.06 on Thursday, which was its weakest level ever.
Analysts say the peso and other currencies were affected by news of hotter-than-expected US inflation, which fuelled expectations that the US Federal Reserve would hike rates again, which would make the dollar even stronger.
The continuous slide of the Philippine peso past 63 against the US dollar has heightened expectations of further monetary tightening by the Bangko Sentral ng Pilipinas (BSP), with rate hikes anticipated both next week and in December.
BPI Lead Economist Emilio Neri Jr. said that if the peso moves closer to 64 in the coming days, the Monetary Board could consider a 50-basis-point interest rate hike at its Thursday meeting.
“The magnitude of the rate hike next week will likely depend on the behavior of the Peso in the coming days. If the Peso depreciates further and moves closer to 64, the BSP may consider a 50-basis-point hike on Thursday,” Neri said.
A larger increase would act as a pre-emptive strike against second-round inflationary effects, rapid de-anchoring of expectations, and potential supply shocks from El Niño, he continued.
Neri also noted that the country’s Gross International Reserves (GIR) have fallen by around $13 billion this year.
Analysts have said that the Philippine peso is vulnerable given the country’s large current account deficit and the weak inflow of foreign direct investments.
The BPI economist said GDP growth is expected to improve in the second half of the year, supported by favorable base effects and a potential recovery in government spending. This would give the BSP greater confidence that the economy can absorb additional rate hikes.
Analysts have said that a weakening peso can further stoke inflation, since the Philippines imports a lot of goods, especially oil, which is purchased with dollars. Inflation already hit 7.2 percent in September.
The depreciation is also expected to impact the country’s sovereign debt, of which a third is owed to foreign creditors.
While a stronger dollar may initially benefit families of overseas Filipino workers, as they can get more pesos for every dollar sent, inflation may also eat into their purchasing power.
Prior to the attack by the US and Israel against Iran at the end of February, the peso was on a winning streak, clawing back to P57.665 on Feb. 27, which was the last trading day for the month. Since the start of the conflict, the peso has depreciated by more than 9.4 percent against the dollar.
