The peso is about to breach P55 to the US dollar this week after depreciating further to P54.7 on Thursday, June 23, amid US recession and high inflation worries.
This could be the third time this month that the peso slipped versus the strong greenback — first at P53 last June 10 and before hitting another low of P54 a week later, on June 17.
If the peso breaks P55 on Friday, June 24, it would fall to a 17-year low.
On Thursday, the peso closed at its low of P54.7 after briefly gaining some ground at P54.35. The spot market volume amounted to $1.061 billion from $1.348 billion last Wednesday.
During Thursday’s Monetary Board policy meeting, the Bangko Sentral ng Pilipinas (BSP) increased the key rate anew by 25 basis points (bps) to 2.5 percent, which was anticipated by the market. The peso still reacted and depreciated as the BSP also raised its inflation forecasts for the next two years on account of the expected higher oil prices that could last for some time.
When asked if the peso vis-à-vis the US dollar will breach P55 soon, BSP Deputy Governor Francisco G. Dakila Jr. said the market will determine the exchange rate market rates but the BSP, he said, is “ready to intervene” if they detect speculative attacks against the peso.
Dakila noted that the year-to-date average for the peso is P51.98 to the US dollar.
“This is very much within DBCC (Development Budget Coordination Committee) assumptions of P51 to P53 for 2022,” he said.
The BSP official also reiterated that the recent weakening of the peso, along with other currencies in the region, is consistent with the more aggressive monetary normalizaiton actions of advanced economies such as the US Federal Reserve which last week, raised its own interest rates by 75 bps.
At a possible P55 exchange rate within the month, the peso is already in unpredicted territory since most analysts as of May and even early June, assumed the peso will only depreciate at P53.50.
To stabilize and temper a depreciating peso and contain rising inflation expectations, the Monetary Board has started its rates adjustments last May 19. After the June 23 rate hike, the BSP is also hinting another 25 bps rate increase on Aug. 18.
When the spot market is highly speculative, the BSP will use its monetary policy tools to absorb any short-term volatility, including foreign exchange market participation.
For now, BSP’s policy of a flexible or free-floating exchange rate versus a fixed exchange rate helps protect the peso against speculative attacks.