MANILA, Philippines — The Philippine peso touched its all-time low on Tuesday before scaling back the decline, sustaining a weakness driven by the country’s rising imports and out-of-sync policy settings between the Bangko Sentral ng Pilipinas and US Federal Reserve.
The local unit closed at P56.37 against the greenback, weaker than its previous close of P55.98. Data showed this was the peso's worst performance since Nov. 05, 2004.
On Tuesday, the peso's worst showing stood at P56.45, matching the record low set on Oct. 14, 2004. As it is, the peso's continued decline spells bad news for the Philippine economy that is dealing with inflation driven in part by expensive oil.
For now, a strong dollar trend is taking its cues from the US Federal Reserve's aggressive rate hike meant to cool down demand in the world's largest economy. The peso is not isolated as regional currencies equally suffer, as does the euro as it edges closer to parity with the greenback.
Sought for comment, Domini Velasquez, chief economist at China Banking Corp., explained that a worsening trade deficit clouded sentiment on the local unit. Investors often turn to safe-haven currencies, such as the dollar, when economic conditions in certain localities turn less-than-ideal for them.
"Today, a worsening trade deficit print likely affected sentiments on the peso. As the trade deficit is expected to remain wide for the rest of the year, we will likely see a weak peso until year end also," she said in a Viber message.
Velasquez explained that the BSP will intervene on the local unit in certain occasions. The central bank is due for another rate-setting meeting in August, one that could see them taking on a hawkish stance to address the peso's slump.
"On intervention, we expect the BSP to only intervene to prevent large volatilities in the FX market and possible speculative attacks on the peso. Recent statements of Governor Medalla on market forces setting the rate of the Philippine peso remains aligned with the country’s policy of a managed flexible exchange rate," Velasquez said.
"We do not expect the BSP to intervene in such a way as to deviate from this policy," she added.