THE PESO on Monday breached the 55:$1 mark at an intraday weakest of 55.15 against the dollar, raising concerns that the local currency is sliding too fast despite government assurances that it remains stable.
The last time the peso traded at an intraday low that breached 55:$1 was more than 16 and a half years ago, or since Oct. 25, 2005, at 55.15 to $1, according to Rizal Commercial Banking Corp. chief economist Michael Ricafort. On that day, trading closed at 55.26:$1.
“Since the start of 2022, the peso’s depreciation of 7.4 percent is now the worst in Asean (Southeast Asian markets),” Ricafort said. The peso started this year at 51 to $1.
The local currency eventually ended Monday’s trading at 54.78 to a dollar, a gain of 20.5 centavos from 54.985 on June 24.
After depreciating for eight straight days, Ricafort said the peso closed stronger “as global oil prices recently lingered among one-month lows and the 10-year US Treasury yield lingered among two-week lows.”
Analysts are worried about the speed that the peso has been depreciating, and that this might come to the point when the Bangko Sentral ng Pilipinas (BSP) would have to use its foreign exchange reserves to arrest the peso’s plunge.
Emilio Neri Jr., lead economist at Bank of the Philippine Islands, questioned government assertions that the peso was middling among Asian currencies — neither suffering the worst or faring the best, but relatively stable.
Faster inflation
“On both a year-on-year (today compared to the same day last year) and a year-to-date (today compared to the start of this year) basis, the peso may soon overtake the South Korean won as the second weakest currency in Asia, with only the Japanese yen left depreciating more than the peso versus the US dollar,” Neri said.
“Now that we are trading near 55.10, the peso is down by more than 5 percent in about a month… not a very reassuring pace of decline,” he added.
Neri said such a rate of depreciation for the peso would result in inflation expectations rising farther above the government’s target range of 2 to 4 percent. The latest reading put inflation at 5.4 percent in May.
Nicholas Mapa, a senior Philippine economist at ING Bank, also warned of faster inflation and a weaker peso ahead, blaming the BSP’s lack of intention to increase interest rates more aggressively.
Mapa has raised the alarm that the current situation was very much like that in 2018, when the BSP waited too long to increase rates and eventually spent billions of dollars to stop the decline of the peso. (Ronnel W. Domingo ©Philippine Daily Inquirer 2022)
