Philippine peso’s historic slide continues, hitting record low P64.17 per dollar
MANILA, Philippines – The Philippine peso breached the P64-per-dollar level for the first time in history on Tuesday, October 27, sinking to another record low as the local currency continued its losing streak despite the Bangko Sentral ng Pilipinas’ (BSP) aggressive interest rate hikes.
The peso closed at P64.17 against the US dollar, weakening by 22 centavos from its previous record-low finish of P63.95 a day before on Monday, October 26, according to data from the Bankers Association of the Philippines.
The local currency opened trading at P63.95 before weakening to an intraday low of P64.20.
The historic depreciation comes just days after the BSP delivered a “jumbo,” larger-than-expected 50-basis point rate hike on October 22, bringing its key policy rate to 5.50% as inflationary pressures continued to mount.
Despite the peso’s continued slide, BSP Governor Eli Remolona Jr. has maintained that the central bank will not defend the currency at any particular level.
“We’re not hiking the policy rate to defend the peso,” Remolona said during a briefing on October 22. “We have estimates of how much the peso has to move before it becomes inflationary, and that’s when we tend to intervene.”
Remolona did not disclose the level of depreciation that would trigger intervention, saying it could give currency speculators an advantage.
“But there is a threshold. Not every depreciation is inflationary. It has to be significant enough,” he said.
The BSP governor explained that intervention would only cushion excessive currency movements rather than stop the peso from weakening altogether.
“We don’t end up preventing the peso from depreciating,” Remolona said.
The central bank governor said that the BSP’s model does not put any specific significant on psychological thresholds such as the P63:$1 or P64:$1. The peso closed at P63.52 to the dollar on October 23, the day that BSP announced its latest rate hike.
Former BSP deputy governor Diwa Guinigundo likewise said the BSP’s rate hikes were done primarily to prevent second round effects of inflation, not to halt the slide of the peso, which is being affected by separate factors.
In a DZBB radio interview on Tuesday, Guinigundo pointed to the country’s weak capital flows, balance of payments deficit, and low levels of foreign investment as the fundamental factors behind the peso’s falls. Another non-fundamental shock affecting the peso-dollar exchange rate is what he calls the “cloud of uncertainty” that hangs over investors amid the corruption allegations and political troubles afflicting the Philippines.
The former deputy governor said the government should strive to restore investor confidence by tackling corruption, improving rule of law, and speeding up the impeachment trial of Vice President Sara Duterte.
A weaker peso makes dollar-denominated imports, such as oil, more expensive for Filipino consumers and businesses, potentially adding to already elevated inflation. For OFW families, a weaker peso may seem like a boon since they get more pesos for every dollar sent home, but that gain is partly eroded if the same currency weakness pushes up the cost of fuel, food, transport, and other everyday expenses anyway. – Rappler.com
