Peso exchange rate breaches 152:$1
The peso settled firmly at R52:$1 yesterday, hitting a high of R52.11 in early trade, and officially breaking the government’s peso-dollar assumption for the year of R49-R52.
The exchange rate opened at R52.03 from Tuesday’s close of R51.98, near the day’s low of R51.90, based on data from the Philippine Dealing System.
Metrobank analysts expect the peso to range up to R52.15 this week, an eleven-year low.
ING Bank said the wider trade gaps continue to weaken the local currency. Its senior economist Joey Cuyegkeng said the $4-billion trade deficit in December is a record high and “worsened” the overall trade balance in 2017 to a deficit of $29.8 billion which was more than $3 billion in 2016.
Cuyegkeng said an expected higher deficit of $35 billion for this year will add pressure to the peso depreciation. “The worsening trade balance will likely lead to another year of underperformance for the Philippine peso (and the) dovish central bank assessment of inflation for 2019 also contributes to the weakness,” he said in a commentary provided by the bank.
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. has remained unfazed by the exchange rate movement, always reminding the market that economic fundamentals are strong and intact.
When the peso climbed to R51 in January versus a 2018 start of R49.95, Espenilla was quick to assure the market that the peso was “just fine” and that the peso is only “demonstrating flexibility, reflecting day-to-day market conditions.”
Acknowledging the peso-US dollar volatility rate, the BSP chief has advised the public to plan around the exchange rate movement and consider the exchange risk factors when making business decisions.
Espenilla has often said that inflation management is a primary mandate, and the BSP’s primary challenge. “This year inflation could trend higher than anticipated (due) to possible further increases in global crude oil prices and transitory pressures on prices of the National Government’s tax reforms,” he said in a recent forum. “Nonetheless we expect inflation to remain stable and within our target range over the medium term.”
Inflation rose to four percent in January, still within the BSP’s expected range for the month.
As for the exchange rate, Espenilla reiterated that US rates' increases which will result to funds migration from emerging economies such as the Philippines will continue to impact on capital flow reversals.
In short, this will affect the balance of payments which is in a shortfall, and the peso that is expected to remain weak. “The BSP’s first line of defense was to maintain a flexible exchange rate and provide foreign currency liquidity from foreign exchange reserves to manage sharp movements,” he has said.