The Philippine peso fell again on Friday, reaching a fresh 12-year low the day after the central bank announced its second cut in banks’ reserve requirement ratio (RRR) in three months.
The peso dipped as far as 52.63 per dollar, 0.15 percent weaker than Thursday’s close of 52.55, which was the lowest level since July, 2006.
“The peso will face stronger depreciation pressures in light of more money supply circulating in the domestic economy,” Angelo Taningco, economist at Security Bank in Manila, said in a research note.
The currency has weakened against the dollar six of the past seven sessions.
The 1 percentage point reduction in banks’ required reserves is expected to add around R100 billion ($1.90 billion) to the financial system after it takes effect on June 1.
The move, announced on Thursday, follows a similar size cut in March and reduces the RRR level – still one of the highest in Asia – to 18 percent.
Khoon Goh, head of Asia research for ANZ, said the RRR cuts are “designed to replace some of the liquidity lost through the BSP’s intervention, so it’s not seen as an easing.”
Policymakers have repeatedly said that the RRR reductions, which had long been flagged, should not be seen to signal a change in monetary policy stance, but part of a shift towards more market-based policy implementation.
On May 10, the central bank raised its benchmark interest rate for the first time in more than three years, to contain price pressures and manage expectations on inflation, which is at a five-year peak.
The peso has been weakening due in part to a rise in US interest rates, which has widened interest rate differentials between domestic and US yields. It is down 5.4 percent against the dollar this year.
ANZ’s Khoon Goh said the external position is the “main driver for the peso weakness for the time being and it’s not expected to change anytime soon.”
Security Bank’s Taningco said a sharper peso depreciation could stoke price pressures at a time inflation has been accelerating due to rising food and fuel costs.
The Philippines’ broader stock exchange index, the worst performer in Southeast Asia this year, fell as much as 0.6 percent on Friday morning.
“This is a general weakness because of the peso and the cancellation of the summit with North Korea,” said Miguel Agarao, investment analyst at Wealth Securities, Inc. in Manila, adding that first quarter corporate earnings were lackluster.