The market-determined peso shied away from a P55 exchange rate to the US dollar on Friday, June 24, unlike the past two Fridays when the local currency breached new levels.
The peso closed the week at P54.985, short by P0.015 to hit a 17-year low of P55, versus the strong US dollar.
Week-on-week, the local currency lost P0.92 or 1.7 percent from the June 17 exchange rate of P54.065.
Since the start of 2022, the peso has depreciated by P3.99 or by 7.81 percent. The peso-US dollar rate finished at P50.999 on the last trading day of 2021.
From its Thursday close of P54.7, the local currency opened at P54.65 on Friday morning. It re-gained some of its value at P54.60 before hitting a high of P54.99. It finally closed at P54.985. The spot market volume totaled $1.401 billion, up from Thursday’s $1.061 billion.
The last time the exchange rate was at P55 was on Oct. 27, 2005 when it closed at P55.08:$1. The weakest peso was at P56.45 in 2004, during the Arroyo administration.
On Thursday, June 23, the Bangko Sentral ng Pilipinas (BSP) lifted the benchmark rate anew by 25 basis points (bps) to 2.5 percent. The market was expecting the rates action but it still reacted and the peso depreciated further amidst inflation, US recession and high interest rates concerns.
BSP Deputy Governor Francisco G. Dakila Jr. said the BSP will leave it to the market to determine the exchange rate. The BSP however is prepared to intervene to protect the peso against speculative attacks.
Dakila also noted that the year-to-date average for the peso is P51.98 to the US dollar as of June 23. At this level, he said the exchange rate remains within the P51 to P53 peso-US dollar assumptions of the Development Budget Coordination Committee for 2022.
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.
Dakila said the recent weakening of the peso, along with other currencies in the region, is consistent with the more aggressive monetary normalization of advanced economies such as the US Federal Reserve which has recently raised its own interest rates by 75 bps.
To stabilize and temper a depreciating peso and contain rising inflation expectations, the Monetary Board has started its rates hike last May 19. After the June 23 rate hike, the BSP is also hinting another 25 bps rate increase on Aug. 18.
“The peso remains relatively stable compared to most regional currencies,” said outgoing BSP Governor Benjamin E. Diokno last week.
He said the currency depreciation is “not only limited to the Philippine peso; it is happening globally.”
“But, the BSP remains committed to a market- determined exchange-rate and we intervene only to ensure orderly market conditions and prevent excessive short-term volatility in the exchange rate,” said Diokno.