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Peso closes at record low for 4th straight day

PHILIPPINE STAR/ MIGUEL DE GUZMAN

THE PHILIPPINE peso closed at a record low for the fourth straight day, as the US dollar continued to strengthen amid expectations that the US Federal Reserve will continue to aggressively tighten policy.

The local unit closed at P57.135 a dollar on Wednesday, depreciating by 13.5 centavos from its P57 finish on Tuesday, Bankers Association of the Philippines data showed.

Year to date, the peso has weakened by 12.02% or P6.135 from its P51-per-dollar close on Dec. 31, 2021.

The local unit opened Wednesday’s session at P57 against the dollar, which was also the intraday best.

The peso’s weakest showing was at P57.33, a fresh intraday low.

Dollars exchanged rose to $1.23 billion from $812.19 million on Tuesday.

Wednesday marked the fourth day in a row that the peso closed at a record low.

“The peso weakens alongside the rest of the Asian foreign exchange space on broad dollar strength,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

He said the US Federal Reserve and European Central Bank would inevitably deliver aggressive rate hikes as they try to cool red-hot inflation.

“With inflation likely kicking into higher gear as we head for the winter season, central banks have dug into the sand and vowed to snuff out inflation, seemingly at all costs,” Mr. Mapa said.

US economic data on Tuesday showed the service industry picked up in August, reinforcing expectations the Fed will hike rates by 75 basis points (bps) at its next meeting on Sept. 20-21.   

The weaker peso could lead to higher inflation and prompt the BSP to implement more aggressive rate hikes to stabilize the currency and tame inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Bangko Sentral ng Pilipinas (BSP) has raised benchmark rates by 175 bps since May to tame inflation.

Headline inflation eased to 6.3% year on year in August, from the nearly four-year high of 6.4% in July. It marked the fifth consecutive month that inflation went above the BSP’s 2-4% target.

BSP Governor Felipe M. Medalla said the central bank is likely to increase policy rates this year to support the peso.

“These are challenging times because US interest rate is not just high but it should get higher. In turn that means possibly, a weaker peso as shown in the case of yen and euro,” he said at a Philippine economic briefing in Singapore on Wednesday.

The Monetary Board’s next meetings are scheduled for Sept. 22, Nov. 17 and Dec. 15.

“The peso weakened from inflationary concerns after Russia announced a prolonged shutdown of a key gas pipeline in Europe,” a trader said in an e-mail.

“The local currency might depreciate ahead of potential hawkish comments from various Fed officials overnight,” the trader added.

For Thursday, the trader expects the peso to move between P57.05 and P57.25 against the dollar, while Mr. Ricafort gave a forecast of P57 to P57.20. – K.B.Ta-asan

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