Peso sinks to P57 vs dollar, a new record-low

MANILA, Philippines — The peso found itself in no man’s land on Tuesday as it sank to a new record-low, which some analysts expect to continue as the dollar continues to surge.

The local unit closed at P57 against the greenback, weaker than its previous finish of P56.99.

This was the peso’s worst performance in recorded history, according to analysts. Philstar.com’s database was able to track the peso’s performance against the dollar until 2001. 

As it is, the peso's continued decline is foreboding for a Philippine economy reeling from imported inflation, driven partly by expensive oil. The Philippine economy is also looking to regain economic momentum as it recovers from pandemic fallout in the past two years, thereby boosting the country's imports.

This strong dollar trend is taking notes from the US Federal Reserve's slate of aggressive rate hikes to cool down consumer demand stateside. That said, the peso joins other regional currencies, including the euro, in slumping under a resurgent greenback.

Sought for comment, Domini Velasquez, chief economist of China Banking Corp., said the peso’s depreciation will continue considering that US Federal Reserve Board is meeting this month. 

“Hence, we expect continued depreciation of the Philippine peso, together with other emerging market currencies. We think that aside from another 75-bp hike from the Fed, they will probably push up their terminal rate outlook, which will also cause another bout of dollar strengthening,” she said in a Viber message. 

Velasquez noted that while there is difficulty in projecting the peso’s decline considering this historic finish, “we are more or less certain that this downward trend will continue, possibly until next year.”

Miguel Chanco, chief Emerging Asia economist for UK-based Pantheon Macroeconomics, is not worried about the peso’s weakening.

“I'm not particularly concerned about the peso's renewed weakness, as it remains, and has been for some time, mostly a strong dollar story,” he said in a Twitter message.

Chanco opined that “the peso now is much closer to fair value on a real effective exchange rate basis” and that the latest inflation outturn, inching down 6.3% year-on-year last month, meant that inflation could have peaked already. 

“It certainly could flirt with the PHP58 mark in the next few weeks, but significantly more depreciation from these levels is highly unlikely in my view,” he added. 

The Bangko Sentral ng Pilipinas laid out a similar case of the local unit enduring the dollar’s resurgence. But Jun Neri, lead economist for Bank of the Philippine Islands, commented that the central bank needs to act quickly if it intends to arrest the peso’s decline. The BSP’s policy rate currently stands at 3.75% after a succession of rate hikes in past months. 

“If BSP doesn’t keep up with FOMC hikes and imports continue to surge, we can see 58 within this year,” Neri said in a Viber message.