The peso depreciated to a new all-time intraday low of P56.90 vis-à-vis the US dollar on Friday, Sept. 2, past the previous record of P56.45.
While poised to break P57, the local currency still managed to regain lost grounds and closed at P56.77 which is the exchange rate's new record low. It is weaker compared to Thursday's P56.42, based on data published by the Bankers Association of the Philippines (BAP). Its intraday best on Friday, when the peso briefly appreciated, was P56.50.
The spot market volume dropped to $936.95 million on Friday compared to $1.087 billion previous close. The BAP weighted average for the peso was at P56.791.
“Presently, the PHP (Philippine peso) reached an all-time high of 56.90 breaking the previous high of 56.45 set in 2004. The PHP is pressured by US dollar strength that is causing all other currencies to reach their multi-year highs,” Bank of the Philippine Islands (BPI) noted in a text message.
The Ayala-led bank said the greenback is supported by the US Federal Reserve’s influential hawkish stance which is favoring a strong US dollar. “The US dollar bull run is backed by prospect of continued rise in interest rate as articulated by Fed Chairman Jerome Powell in the recently concluded Jackson Hole meeting in an attempt to curb inflation in the US,” said BPI.
The Bangko Sentral ng Pilipinas (BSP) has been adjusting benchmark rates higher and intervening in the exchange market to stabilize the peso against the mighty greenback.
Exchange rate pressures come from the market’s expectation that the BSP will further tighten the benchmark rate in the last three Monetary Board policy meetings for this year, as well as the US Federal Reserve’s extended tightening mode.
From its end-2021 close of P50.99, the local currency’s value has fallen by P5.78 or 11.3 percent. It is the third worst currency performer in the region this year, after the Japanese yen and South Korean won.
After raising the key rate by 175 basis points (bps) to 3.75 percent as of Aug. 18, the BSP has signalled at least one more policy rate adjustment either in September, November or in December.
The peso briefly hit its previous all-time low of P56.45 last July 12. Before this, the last time the peso was at this weakest was October in 2004, during the Arroyo administration.
The country's exchange rate policy supports a freely floating exchange rate system where the BSP leaves it to market forces to dictate the exchange rate level. The BSP will only enter the spot market to ensure “order and temper destabilizing swings” in the peso-US dollar rate.
Meantime, the BSP does not release any forecasts for the exchange rate, but for the purpose of setting the national government budget, the government and the BSP has a peso-dollar rate assumption of P51 to P55 until 2024.