Peso slides to 7-year low, closes at 48.25:$1

MANILA, Philippines - The peso retreated to its weakest level in seven years yesterday, breaching the P48:$1 mark amid uncertainties over global economic slowdown and an impending interest rate hike by the US Federal Reserve.

The peso closed at P48.25 to $1 yesterday from P47.99 to $1 last Friday. It opened weaker at P48.07 before hitting an intra-day high of P48.05 and an intra-day low of P48.26.

Volume of trade was heavy at $758.5 million yesterday from Friday’s $419.8 million.

The last recorded weakest peso close was P48.356 on Sept. 16, 2009. The peso has shed 3.5 percent this month alone amid a “state of lawless violence” declared by Duterte following a deadly explosion in Davao City last Sept. 2.

President Duterte also launched tirades against US President Barack Obama, UN Secretary General Ban Ki-moon and the European Union for their having called attention to alleged human rights abuses in the conduct of his war on illegal drugs.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. traced the continued weakness of the peso to uncertainties over the Fed’s decision as well as the strong demand for US dollars.

“The peso movement reflected the continuing uncertainty about the US Fed’s next policy action, just like other currencies, plus strong foreign exchange demand for fixing and corporate requirements,” he said.

BSP Deputy Governor Diwa Guinigundo echoed Tetangco’s sentiment, saying foreign investors have been unnerved by the Fed position and by the general weakness in global economic activity.

Last Sept. 22, the US central bank decided to keep interest rates steady but signaled it could tighten monetary policy by the end of this year.

He pointed out the recent weakness of the peso is an offshoot of macro-fundamentals and negative sentiment.

“Based on our sound market indicators, including the sustained external payments surpluses and significant gains in our dollar reserves, the peso should be firm. However, given both external and domestic factors driving market sentiment, soft patches have been seen in the foreign exchange market,” he added.

Over time, Guinigundo said the market is expected to digest the solid macroeconomic foundation of the Philippine peso.

“Any concern about the sustainability of macroeconomic policy should be tempered by the fact that the same policies that have produced robust growth, low inflation and interest rates, sustainable fiscal position and sufficient external buffers will be pursued by the Philippines in the next six years,” he added.

Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands (BPI), said the peso continued to underperform and stray far from the “comfortable middle” being maintained by the BSP.

Mapa said the central bank would likely tap its gross international reserves (GIR) – amounting to a record $85.9 billion in end–August – to help ease excessive foreign exchange pressure.

“Expect Tetangco to resort to heavy foreign exchange presence in the next few weeks to keep the peso from straying too far from the proverbial middle of the regional pack,” he added.

ING Bank Manila senior economist Joey Cuyegkeng said the peso has been underperforming against currencies of other Asian emerging markets due to local factors, including expectations of lower current account surplus.

“In sum, economic fundamentals remain favorable but there are emerging stresses on the economy and could be exacerbated by non-economic factors. Investors have priced in a lot of positives about the economy and are now on the lookout for risks that could disappoint expectations,” Cuyegkeng said.

WB-IMF meeting

The administration yesterday again downplayed the local financial market sell-off, with the finance chief set to embark on his first overseas trip to meet with multilateral lenders amid concerns over President Duterte’s harsh rhetoric and vicious war on drugs.

“How can you change based on an election? You must change on what you actually see,” Finance Secretary Carlos Dominguez III told reporters on the sidelines of the budget hearing at the House of Representatives.

“I mean we are still paying our debt. Our global debt is going down... You look at how the dollar is doing around the world. You know when (US Federal Reserve chair Janet) Yellen says we might raise the rate, that will affect us, it’s not only our situation,” he explained.

Dominguez is set to represent the Philippines at this year’s spring meetings of the World Bank and the International Monetary Fund (IMF) from Oct. 7 to 9 in Washington.

Socioeconomic Planning Secretary Ernesto Pernia and Tetangco will accompany Dominguez to the meetings.

Asked if he is willing to answer “issues” on the Duterte administration, Dominguez said “it will depend what issues will be brought up.” He did not elaborate.

President Duterte’s three-month-old administration is being haunted by foreign fund outflow at the benchmark Philippine Stock Exchange index (PSEi).

PSEi closed 1.18 percent or 91.14 points down at 7,632.46, unable to sustain its more than two-percent recovery after the US Fed decided to keep rates steady last week.

At the bond market, the government awarded P20 billion worth of Treasury bills with lower interest rates across-the-board.

Finance Assistant Secretary and spokesperson Paola Alvarez shrugged off recent developments, which came after Duterte’s castigating the US and the EU reportedly for interfering in domestic affairs.

Foreign Affairs Secretary Perfecto Yasay Jr. also sounded defiant in his address to the UN General Assembly, asking nations to let the Duterte administration continue its anti-drug campaign amid allegations of human rights violations.

“If one were to ignore the political noise generated by certain groups, one could clearly hear the voices of continued optimism over President Duterte’s commitment to bring real change,” Alvarez said in a statement, without specifying which groups she was talking about.

To support the administration’s push for change are tax reform packages, one of which was submitted to the House yesterday.

“We put a package where both WB, IMF and many foreign governments said they agree with,” he said. 

Sought for comment, Emilio Neri Jr., lead economist at the Bank of the Philippine Islands, said there clearly are some political concerns among investors.

“The performance in T-bills is consistent since the tendency is really to go to safer assets. If they have issued long-termed (bonds yesterday), it would have been different,” Neri said.

“Part of it is really due to political uncertainties. While there is no science to use to clearly gauge how much of it is coming from such, it is fairly clear that part of it is due to politics,” he added.