For the 3rd straight day, the peso hit a new record low yesterday and economists are seeing a continued depreciation in the coming days that could lead to higher import prices and faster overall inflation.
The peso closed at 58.49, 0.49 centavos lower than Wednesday’s close of P58 to a dollar.
The local currency opened at P58.10 then hit a low P58.50.
Volume was higher at $1.51481 billion.
The peso has already depreciated by 14.7 percent since the start of 2022. Yesterday was also the 9th record low closing rate for the peso since the start of the year.
The depreciation happened even as the policymaking Monetary Board reduced by another 50 basis points the key rates of the Bangko Sentral ng Pilipinas.
Michael Ricafort, RCBC Chief Economist, said the peso also was affected by the widely expected large Fed rate hike of at least 0.75 “that increases the attractiveness of the US currency with higher interest rate income on US dollar deposits, fixed income investments and/or securities.”
He noted that the peso also weakened after the benchmark 10-year US Treasury yield posted new 11-year high of 3.62 percent, now at 3.53 percent that also increases the US dollar-denominated bond yields.
“This could lead to higher borrowing/financing costs for some listed companies,” Ricafort said.
Bank of the Philippine Islands economists said they continue to expect Peso depreciation in the medium term “as imports will likely increase further due to the recovery of the economy.”
“Dollar demand may pick up and keep the exchange rate above the P56 level. Meanwhile, the possibility of tighter dollar supply may contribute further to peso depreciation (as) the Federal Reserve is expected to continue hiking aggressively this year,” BPI economists said.
Ricafort noted that Fed rate estimates have been rising in recent months; reflecting more aggressive Fed rate hikes in an effort to bring down elevated US inflation from the 40-year high of 8.3 percent in August 2022 after reaching an immediate high of 9.1 percent in June 2022 to the target of 2 percent.
“The last time US inflation was at below 2 percent was in January-February 2021,” Ricafort said.
He said that offsetting positive factor for the peso would be the lower global crude oil prices to among 1-week lows and also near 8-month lows.
Since the start of 2022, the peso already depreciated by a total P7.491 pesos or 14.7 percent from the P50.999 in end-2021.
Ricafort said the next resistance level is at between P58.50 and P58.75. –Jimmy C. Calapati
