Peso falls past 57 per dollar, a fresh record-low

MANILA, Philippines — The peso continued to weaken on Wednesday to post another record-low, as the dollar sustained its rally ahead of the US Federal Reserve’s looming rate hikes. 

The local unit closed at P57.135 against the greenback, weaker than its previous finish of P57. 

This is the fourth straight day that the local currency sank to record-lows after record-lows amid a strong dollar that’s also battering other currencies.

As it is, the peso's continued decline is foreboding for a Philippine economy reeling from imported inflation, driven partly by expensive oil. The Philippine economy is also looking to regain economic momentum as it recovers from pandemic fallout in the past two years, thereby boosting the country's imports.

This strong dollar trend is taking notes from the US Federal Reserve's slate of aggressive rate hikes to cool down consumer demand stateside. That said, the peso joins other regional currencies, including the euro and the yen, in a slump against a resurgent greenback.

Nicholas Antonio Mapa, senior economist at ING Bank in Manila, pointed that the peso already sank 10.9% this year and is down 1.4% for September. He credits the anemic showing of the peso to a widening trade deficit. 

“This underperformance can be traced to the PHL substantial widening of the country’s trade deficit. Surging imports (partly due to bloated energy import bill) has easily outpaced export growth, suggesting that there is a fundamental reason for PHP to weaken,” he said in an emailed commentary. 

Mapa projected that the peso would further depreciate since the local unit is sandwiched between the trade deficit and a strong dollar. That said, he expected the Bangko Sentral ng Pilipinas to rush to the peso’s aide. 

“BSP will likely be making cursory appearances to help slow the depreciation trend but it will be difficult to stem the tide completely.  The central bank has been aggressive off late in hiking policy rates to defend collapsing interest rate differentials but we know that emerging market central banks can only do so much to cushion the impact of the impending storm,” he said. 

The BSP kicked off the start of its normalization cycle by injecting a total of 175 basis points into interest rates, used by banks and financial institutions as the benchmark for loans. 

“BSP will likely sustain rate hikes in the near term and bank on the reserves it aggressively built up during the pandemic to get through,” Mapa added.