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Business

Peso weakens to 17-year low

Lawrence Agcaoili - The Philippine Star
Peso weakens to 17-year low
This was the weakest level for the local currency since closing at 55.71 to $1 on Oct. 20, 2005.
Walter Bollozos, File

MANILA, Philippines — The peso weakened further yesterday after depreciating by 44 centavos to close at 55.67, the lowest level in almost 17 years, from Tuesday’s 55.23 to $1 amid soaring inflation.

This was the weakest level for the local currency since closing at 55.71 to $1 on Oct. 20, 2005.

Data from the Bankers Association of the Philippines (BAP) showed the peso opened weaker at an intraday high of 55.42 before losing steam to hit an intraday low of 55.72 to a dollar.

Trading volume slipped by 3.1 percent to $1.24 billion from $1.28 billion last Tuesday.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the weakening peso to the continued strengthening of the dollar against major global currencies partly brought about by some risk aversion emanating from possible US economic slowdown or even recession amid a more aggressive Federal Reserve in an effort to clamp down elevated inflation that soared to a new 40-year high of 8.6 percent in May.

Ricafort said the sharp decline in global crude oil prices recently to below $100 per barrel could offset the steady rise in the consumer price index (CPI).

The country’s inflation soared to 6.1 percent in June, the highest since the 6.9 percent recorded in October 2018, from 5.4 percent in May on the back of surging global oil prices and other commodity prices.

Ricafort said that another positive offsetting factor for the peso is the recent gains by the Philippine Stock Exchange index (PSEi), at new three-week highs, after the latest overnight gains in the US stock markets.

Furthermore, Ricafort said another offsetting positive factor for the peso was the latest signal made by Bangko Sentral ng Pilipinas Governor Felipe Medalla that the central bank may raise its key interest rates by a total of 100 basis points up to the end of the year.

Medalla said the additional 100 basis points is on top of the 50- basis- point rate hike delivered by the Monetary Board to better manage inflation.

The BSP is now expecting inflation to average five percent for this year and to 4.2 percent for next year, both breaching the central bank’s two to four percent target.

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