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Business

Peso plunges to nearly 55 vs dollar

Lawrence Agcaoili - The Philippine Star
Peso plunges to nearly 55 vs dollar
The local currency lost another 28.50 centavos to close at 54.985 yesterday from Thursday’s 54.70 to $1. This was the weakest level for the peso since it closed at 55.08 on Oct. 27, 2005.
STAR / File

MANILA, Philippines — The peso is expected to hit 55 to $1  as it continues to lose more ground after the Bangko Sentral ng Pilipinas (BSP) opted to gradually tighten the country’s monetary policy stance with another 25-basis-point rate hike on Thursday.

The local currency lost another 28.50 centavos to close at 54.985 yesterday from Thursday’s 54.70 to $1. This was the weakest level for the peso since it closed at 55.08 on Oct. 27, 2005.

It opened stronger at 54.65 and hit an intraday high of 54.60 before losing steam to hit an intraday low of 54.999.

Trading was heavy with volume hitting $1.4 billion, up from Thursday’s $1.06 billion.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the dovish stance of the BSP in terms of gradual tightening would continue to weigh on the peso amid more aggressive rate hikes by the US Federal Reserve in the coming months in an effort to clamp down elevated inflation.

The US Fed jacked up interest rates by 75 basis points on June 15 to fend off rising inflationary expectations.

On the other hand, the Philippine central bank opted for a gradual tightening, delivering another 25-basis-point rate hike last Thursday as it now expects inflation to hit five  percent for this year and 4.2 percent next year.

“The peso exchange rate would now be partly a function of the expected hike in local policy rates in the coming months,” Ricafort said.

“A weaker peso exchange rate is inflationary as this  adds up to the price of imported oil and other imported commodities, leading to some pick up in headline inflation. The Philippines is a net oil  importing country,” he said.

However, Ricafort said the peso’s depreciation in recent months already more than makes up for the narrower  interest differentials between the Philippines and the US.

Ricafort also said the 6.8 percent depreciation of the peso against the dollar since the start of the year may have benefitted the families of overseas Filipino workers, exporters, business process outsourcing (BPO) firms, foreign tourism businesses, and others that earn in dollars.

However, he clarified that any advantage may be offset by higher prices or inflation already at a new 3.5-year high of 5.4 percent in May and could still go up toward six percent in view of higher minimum wages and transport fares.

Earlier, incoming BSP Governor Felipe Medalla told The Chiefs aired on TV5 that the weakening was not unique to the Philippine peso as the greenback continued to strengthen.

“This is a strong dollar problem, not a weak peso problem. The reason the dollar is so strong is that their inflation rate is so high and as a result they will jump up their interest rates much more than we will and we already see this,” Medalla said.

Medalla, who is a Monetary Board Member and former director general of the National Economic and Development Authority (NEDA), said the worst affected country by the strong dollar is Japan.

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