For the first time, peso closes at 58 vs dollar amid looming Fed rate hike

MANILA, Philippines — The surging dollar struck another blow to the peso, which closed at the 58-level for the first time ever as the world braces for another outsized rate hike from the US Federal Reserve.

The local currency’s finish on Wednesday was weaker than its previous close of P57.48, marking a new record-low.

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.

Domini Velasquez, chief economist at China Banking Corp. attributed the peso’s weakness to a strong dollar trend due to the Fed’s aggressive tightening. 

“Market expectations are currently at another 75 bps for the Fed and some are even betting on as much as 100 bps. Tomorrow's policy meeting, where consensus forecast is for BSP to increase rate by another 50 bps, will unlikely stem the depreciation momentum,” she said in a Viber message. 

Data from the Asian Development Bank showed that the peso has depreciated by 11% since the end of 2021. 

“In the local bourse, there was some foreign outflows also as investors remain defensive. As long as the Fed remains aggressive, we will likely see continued peso weakness. Hopefully, remittances and upcoming IPOs will help support the currency,” Velasquez said. 

That said, the Bangko Sentral ng Pilipinas is gearing up to keep pace with Fed. Tomorrow, the BSP is widely expected to hike its key policy rate, mirroring actions from other central banks looking to quell inflation and match the Fed’s rate hikes.

Nicholas Antonio Mapa, senior economist of ING Bank in Manila, is one of those who are expecting another rate increase from the BSP. The BSP has so far hiked interest rates by a total of 175 basis points this year.

“The Bangko Sentral is on track to hike 50bp if Fed hikes 75bp but could upsize should Fed do a 100+. Very little emerging market currencies can do in the face of a hawkish Fed,” Mapa tweeted.