July 8, 2022
MANILA – The Philippine peso closed spot trading at 55.67 against the US dollar on Wednesday – yet another weakest level in nearly 17 years – as fears of a recession in the United States pushed the greenback to its strongest position against other currencies in two decades.
The local currency landed at its weakest position against the US dollar since October 20, 2005, when it closed at 55.71:1.
ING Bank said in a commentary that the current favorable environment for the US dollar is likely to continue over the next three months as the US Federal Reserve continues to push forward with further interest rate hikes.
“Continued Fed tightening amid a global slowdown remains a very positive environment for the dollar,” ING Bank said. “Recession fears pushed the dollar to the highest (strongest) levels since 2002.”
According to DBS, since the start of the year, the peso has depreciated the most among the currencies of the six largest economies in the Association of Southeast Asian Nations (ASEAN).
The Singapore-based bank noted that the peso has lost almost 8% of its value against the dollar since the start of 2022, the worst against the Thai baht, Malaysian ringgit, Indonesian rupiah and Singapore dollar. .
Among the so-called ASEAN-6 currencies, only the Vietnamese dong appreciated against the dollar, by more than 8%.
Way to fight inflation
DBS said in a comment that since the Bangko Sentral ng Pilipinas (BSP) is “firmly in inflation-fighting mode”, the Monetary Board may consider policy rate hikes of 50 basis points (bps) in a single meeting, unlike the previous two. increases of only 25 basis points.
“BSP raised rates by a cumulative 175 basis points in five meetings of the 2018 cycle, with two 50 basis points to stifle inflation,” DBS said, referring to a similar period when the peso was on a trend. bearish.
The bank said it would not rule out 50 basis point BSP rate hikes in a single policy meeting, especially if the peso’s depreciation further worsens inflation.
“[That the] The depreciation of the Philippine peso is at its fastest pace against the US dollar in about five years, adding further upward pressure on imported inflation,” DBS said.
This means that the higher prices of imported inputs drive up the prices of locally produced goods. A possible trigger for imported inflation is the depreciation of the local currency.