Peso recovers, remains above 48 to $1

MANILA, Philippines – The peso managed to gain eight centavos yesterday but remained above the 48 to $1 level after plummeting to its weakest level in seven years last Monday due to uncertainties over the impending interest rate hike in the US as well as negative investors’ sentiments.

The local currency closed at 48.17 from Monday’s 48.25 to $1. It opened weaker at 48.35 and hit an intra-day low of 48.405 before recovering to an intra-day high of 48.17 to $1.

Volume amounted to $666.1 million, lower than Monday’s trading volume of $758.5 million.

The Bank of the Philippine Islands (BPI) said the peso would potentially continue to be confronted with downside risk should foreign outflow in the local equities market continue.

Foreign funds have been pulled out of the Philippine Stock Exchange (PSE) for 24 straight days.

The peso weakened against the dollar as foreign selling continued in the local equities market over the past few weeks.

“Among select Asian currencies, the peso was one of the few that were sold down during the week as inflows in other markets turned positive following accommodative central bank actions,” BPI said.

The Bangko Sentral ng Pilipinas (BSP) last week kept interest rates steady amid robust domestic demand, as well as the benign inflation environment.

The US Federal Reserve also decided to keep interest rates unchanged but signaled it would hike key rates before the end of the year.

Valentin Araneta, a member of the seven-man Monetary Board of the BSP, said in his speech during the Public Investment Conference organized by CFA Society believes the Philippines would benefit from another rate hike in the US.

“At the outset let me say that my personal view is that rising interest rates in the US would be a good sign at this stage because it confirms the world’s biggest economy and a major trading partner of the Philippines is robust and that by raising the interest rates it means the monetary authorities are confident of achieving their inflation targets,” Araneta said.

However, he pointed out adjustment shocks would have to be absorbed because of the huge amount of fickle portfolio capital sloshing around the global financial markets searching for yield that would go back to the US markets due to higher rates.

Araneta said the strong macroeconomic fundamentals of the Philippines would allow it to weather stresses emanating from policy adjustments among its trading partners.