Peso extends decline in morning trade after Fed raises key rate

MANILA, Philippines — The Philippine peso extended its drop on Thursday after the US Federal Reserve lifted its benchmark interest rate and signalled possible acceleration in hikes.

The local unit opened at P53.3 against the greenback in morning trade, weaker than Wednesday's P53.23-per-dollar finish, which was a new low for the peso in nearly 12 years.

As of 2:30 p.m., the peso’s best showing stood at P53.26 while its intraday low was at P53.36 versus the dollar.

"With the more hawkish stance of the Fed to increase rates by maybe four times instead of three times this year, this added to the risk premium of holding investments in Philippine equities, hence the flight to quality leading to the further depreciation of the peso," Luis Limlingan of Regina Capital said.

"On the bright side, the new forex rules easing seen to lessen losses, but not completely reverse the weight of peso slump on bank's income statements for financial year 2018," he added.

The Federal Reserve took note of a resilient U.S. economy Wednesday (Washington time) by raising its benchmark interest rate for the second time this year and signaling that it may step up its pace of rate increases.

The Fed now foresees four rate hikes this year, up from the three it had previously forecast. The action means consumers and businesses will face higher loan rates over time.

"The expectation of a faster pace of hikes in the US, evidenced by today's hike which is causing a stronger dollar and the further widening of our trade deficit, as well as the portfolio outflows from the stock market have contributed to the currency weakness," said Jonathan Ravelas, chief market strategist at BDO. — with The Associated Press