A foreigner exchanges his dollars to peso notes at a money changer shop in Manila yesterday. The peso fell to its lowest level against the dollar in eight years as it breached the P50 to $1 mark at intra-day trading yesterday.
The peso briefly breached the 50 to $1 level yesterday, echoing the weakening of the regional currencies amid the release of minutes from a US Fed meeting indicating the agency is poised to raise interest rates next month.
The peso opened weak at 49.86 before hitting an intra-day low of 50 to $1.
The local currency shed 12 centavos to close at 49.98 from Wednesday’s 49.86 to $1. This was the weakest level since the peso closed at 49.99 to $1 on Nov. 20, 2008 or during the height of the global financial crisis.
Trading volume increased 21.4 percent to $437.6 million from Wednesday’s $360.5 million due to strong demand.
Finance Secretary Carlos Dominguez said the peso’s downtrend trajectory is an expected reaction of the local currency to the anticipated early rate increase by the US Fed, with other Asian currencies also moving in the same direction.
“We are watching the currency movements very closely. We seem to be moving in the same direction as the other currencies. We just want to avoid abrupt changes in the exchange rates,” Dominguez said.
But he added the country’s rock solid macroeconomic fundamentals would
enable the domestic economy to survive external shocks such as higher US interest rates and a stronger dollar.
For his part Finance Undersecretary and chief economist Gil Beltran said the strengthening of the greenback against the peso “is expected as an impact of the Fed normalization.”
“The peso is just normalizing. It was P57 per the US dollar in 2004. All other currencies are moving in the same direction,” Beltran said.
With interest rates on American government bonds now rising, investors have began shifting their focus on the US, which means countries like the Philippines, Malaysia, Korea, Thailand and other Asian economies are seeing their currencies weakening against the dollar.
Bangko Sentral ng Pilipinas Governor Am an do Tetangco Jr. said monetary authorities are not worried about the continued weakening of the peso against the dollar as it is in line with the movement of other regional currencies.
“Our view here is that for as long as movements in the exchange rates are not “out-ofline” against fundamentals and if these are not exaggerated to dislodge expectations, the BSP can allow for the exchange rate to move ( either up or down),” he said.
According to him, the BSP could intervene if there is excessive volatility in the foreign exchange market.
“Otherwise, we reserve scope for official action to stem excessive volatility. Right now, we don’t see a need to veer away from this foreign exchange rate policy,” Tetangco said.
Joey Cuyegkeng, senior economist at ING Bank Manila, said the weakness of the peso is in line with weakness of other Asian currencies as markets remain on edge over likely US trade and job policies as well as fiscal spending under the Trump administration.
“External pressures have become more dominant again,” he said also citing the talks on Brexit as well as the economic slowdown in China.
He said ING is retaining its year-end forecast of 49.50 to $1.
“In an environment of uncertainties, market participants have been slowly increasing US dollar portion of holdings for future foreign exchange payments and servicing and for alternative investments,” he said.