Peso tumbles to close at P55.06:$1

Published June 29, 2022, 4:09 PM

by Lee C. Chipongian

The peso rate breached the P55 level on rallying US dollar, closing at P55.06 on Wednesday, June 29, 2022, from P54.77 on Tuesday, June 2022.

The local currency hit an intraday high of P55.1 after opening at P54.9 against the strong greenback. Its strongest level was at P54.88. The average also settled lower at P55.021 from P54.757, previously. Total volume reached $1.277 billion, according to the Bankers Association of the Philippines.

The peso has been trying to break the P55 level all week after it pierced P54 last June 17. It was on Monday when the peso first cracked the P55 level intraday before regaining lost ground.

At P55 exchange rate, the peso is already in unpredicted territory since most analysts as of May and even early June, assumed the peso will only depreciate to P53.50.

Incoming BSP Governor, Monetary Board member Felipe M. Medalla, has said that another 25 bps rate increase is pending when the Monetary Board policy meeting is held on Aug. 18. This will bring the policy rate to 2.75 percent after two 25 bps adjustments last May 19 and June 23.

The average inflation forecasts for 2022 is five percent, 4.2 percent for 2023 and 3.3 percent for 2024. The higher inflation projections come from upside pressures from elevated fuel costs, the shortage of domestic fish supply and additional transport fare hikes due to the rising oil prices.

BSP officials said the peso is not inherently weak but similar with other currencies in the region, the local currency is depreciating due to the strength of the US dollar. The US policy normalization is favoring a strong US dollar.

Since the start of 2022, the peso has depreciated by P3.78 or by 7.4 percent. The peso-US dollar rate finished at P50.999 on the last trading day of 2021.

From its Friday close of P54.985, the local currency opened at P54.93 on Monday morning. It re-gained some of its value at P54.81 before hitting a high of P55.15. The spot market was traded with a volume of $1.179 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.

The BSP, which implements a free-floating exchange rate, will leave it to the market to determine the peso rate but it is prepared to intervene to protect the currency against speculative attacks which usually happens when there are excessive short-term volatility in the spot market.

Earlier, 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.

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.

BSP officials said the peso is not inherently weak but similar with other currencies in the region, the local currency is depreciating due to the strength of the US dollar. The US policy normalization is favoring a strong US dollar.

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.

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.

 
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