Peso weakens further, pierces 56 to $1 level

MANILA, Philippines — The peso slumped further to its weakest level in almost four months, piercing the 56 to $1 level, as the US Federal Reserve continued to sound more hawkish with additional rate hikes in the coming months to fight sticky inflation.

The local currency depreciated by 29 centavos to close at 56.14 to $1 from Monday’s 55.85 to $1. It opened weaker at 56 and hit an intraday-low of 56.23.

Trading volume rose by 3.1 percent to $1.42 billion from $1.37 billion last Monday.

UnionBank economist Ruben Carlo Asuncion said the US central bank is sounding more hawkish lately, while the Bangko Sentral ng Pilipinas (BSP) has shifted to a dovish stance with a possible pause in its tightening cycle as early as next month.

“US Fed sounding more hawkish lately versus more dovish rhetoric from our BSP. The weakening of the peso was also because market players are covering their positions as the forex moved much,” Asuncion said.

Asuncion said the peso is not likely to depreciate further as the BSP is always ready to smoothen any volatility by participating in the foreign exchange market.

“The situation is really open to wild swings because the next meeting is still in May. It’s more than a month of waiting for clarity on which way monetary policy is actually moving,” Asuncion said.

The BSP has raised key policy rates by 425 basis points since May last year to tame inflation and stabilize the peso, which slumped to an all-time low of 59 to $1 in October due to the aggressive rate hikes delivered by the US Fed.

Through the aggressive rate hikes and intervention by the BSP in the foreign exchange market, the peso bounced back to the 53 to $1 handle in February.

The actions of the BSP helped cool inflation to a six-month low of 7.6 percent in March from 8.6 percent in February, bringing the average to 8.3 percent in the first quarter – still way above the central bank’s two to four percent target range.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the peso slumped to its weakest level in 3.5 months or since its closed at 56.20 to $1 on Dec. 28, 2022.

After emerging as one of the best performing currency in the region earlier, the peso has depreciated from the end-2022 level of 55.755 to $1.

Ricafirt said the weaker peso could lead to higher import costs and overall inflation.

A price situationer report from the Philippine Statistical Authority indicated some increase in rice and pork prices due to more provinces, especially in Southern Philippines, affected by African Swine Fever (ASF), though offset by lower prices of some vegetables and other agricultural products due to weather conditions into the summer season.

The peso also weakened after global crude oil prices lingered among 2.5-month highs after the unexpected oil production cut of more than one million barrels per day as announced by the Organization of Petroleum Exporting Countries (OPEC).