Peso weakens further, hits fresh 10-year low

The peso shed 5.5 centavos to hit a fresh 10-year low at 50.27 to a dollar from Friday’s 50.215 level amid the expected rate hike by the US Federal Reserve next month and ahead of the speech of US President Donald Trump in Congress.

The local currency closed at its lowest level since hitting 50.32 on Sept. 26, 2006.

The peso opened weaker at 50.24 and depreciated further to an intraday low of 50.285. Volume amounted to $366.6 million, lower than the $415.3 million booked last Friday.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the perception of the exchange rate movement could be due to the uncertainties brought about by another rate hike in the US next month as well as the policies to be adopted by the Trump administration.

“First, people are talking about the March rate hike. Second, the uncertainties emanating from the economic policy agenda of the US government,” he said.

Minutes released by the US Fed showed authorities expect to raise benchmark rates “fairly soon” after jacking up interest rates for the second time in a decade with a 25-basis point increase last December.

“Remember that exchange rate continues to be driven by sentiment even as market fundamentals continued to be resilient particularly growth and inflation,” Guinigundo said.

The BSP sees inflation for the month of February kicking up to between 3.1 and 3.9 percent from 2.7 percent in January due to higher oil prices, fare hikes and more expensive electricity rates.

The Duterte administration also expects gross domestic product ( GDP) growth to range between 6.5 and 7.5 percent this year from 6.8 percent last year as it intends to ramp up infrastructure spending.

“Public finance is improving so that more and more infrastructure projects can be funded. These are stories that can actually drive the movement and the dynamics of the exchange rate,” Guinigundo said.

For his part, ING Bank Manila chief economist Joey Cuyegkeng said local factors continued to dictate the weakening of the peso against the greenback, aggravated by the impending speech of Trump before Congress as well as the speeches of US Fed chair Janet Yellen and vice chair Stanley Fischer.

“We attribute this local political un- certainties especially in the last couple of weeks. This set of political developments leading to intensified political noise result to cautious views tending to favor US dollar rather than the peso,” he said.

Cuyegkeng also cited the country’s external payments position including a widening trade deficit and lower current account surpluses resulting to the underperformance of the local currency since the start of the year.