By Komfie Manalo and Annie Grace Pagtolon-an
The Philippine peso breached the 53-level against the US dollar yesterday in a sharp depreciation attributed by traders to “continuous market reaction.”
A banker interviewed by Daily Tribune expressed surprise that the Bangko Sentral ng Pilipinas (BSP) has not yet intervened despite the continued weakeness, saying the central bank is not “as active as before” when the peso is showing signs of weakness.
“Maybe the central bank is still comfortable with the exchange rate. Or Maybe they are just choosing their space and saving their bullets for something they are programming,” the banker added.
He said the continued drop in the peso could signal another rate hike. The BSP raised policy rates last month for the first time in four years to tame inflation.
Data showed the local currency plummetted to as low as 53.079 after the market opened from the Independence Day holiday before closing at P53.23 last Wednesday, its weakest since P53.55 to $1 recorded on June 29, 2006.
Reports said the “continuous market reaction” was mainly due to a wider trade deficit and lower foreign exchange reserves.
However, industry observers are forecasting the peso to slide further this year and even reach the P53.60 level versus the greenback before the year ends.
“The market was reacting to the Trump-Kim summit in Singapore,” a chief economist at one of the local banks who asked not be named told the Daily Tribune, referring to the historic meeting between US President Donald Trump and North Korean leader Kim Jong Un in Singapore to defuse tensions in the region and start the denuclearization talks.
“It was a non-event. Everybody was expecting something concrete from the meeting. In the end, the dollar further strengthened in anticipation of the Fed meeting later tonight (Wednesday morning in Washington),” the economist added.
Another rate hike could have an inflationary effect on the peso, experts said.
Impact on local stocks seen
BPI Securities analyst Riche Lim said some foreign investors might choose to go underweight on local stocks to avoid the weak peso’s impact on their stock portfolios.
He was quoted in a TV interview as saying, “That’s really a function of the US increasing their interest rates and obviously, the imports we are getting from our infrastructure spending, and I think that should continue. On a consumption basis, it should actually be good, for remittances, for BPOs (business process outsourcing),” he said. “On the economic side, I think we’re good,” he added.
The US Federal Reserve is expected to raise interest rates for the second time this year at the end of its meeting on Thursday (Manila time).
The European Central Bank will also meet later this week.
“Some foreign investors may choose to be underweight on Philippine stocks to avoid the weak peso’s impact on their stock portfolios,” Lim warned.
Budget Secretary Benjamin Diokno said a weak peso would increase the value of dollar remittances from Filipinos working abroad.
Trade Secretary Ramon Lopez, meanwhile, asserted it would make local goods cheaper for buyers abroad.
Local financial markets will be closed anew on Friday, in observance of Eid’l Fitr.