The PHILIPPINE PESO sank a new record low on Thursday, breaking the P60-per-dollar mark and increasing inflationary risks imported from more expensive countries.
The local currency closed at a new record low of P60.10 a dollar – 58 centavos weaker than its close on Wednesday – as markets reacted to Iran’s retaliation attack on Israel and US assets in the Middle East.
The peso opened the session weaker at P59.90, which was its intraday best. The peso’s worst showing during the session was P60.40, an intraday record low.
Dollar gains increased to $2.437 billion on Thursday from $1.78 billion on Wednesday.
The drop in the peso reflected the market’s knee-jerk reaction to Iran’s retaliation, Reyes Tacandong & Co. said. Senior Counsel Jonathan L. Ravelas in a Viber message.
The war in the Middle East threatens to push crude prices past $100 per barrel, which could increase the Philippines’ import bill and add pressure to domestic prices. Higher energy costs may also complicate the Bangko Sentral ng Pilipinas (BSP) policy lot.
“The dollar-peso closed at record lows as oil prices continued to rise as the US-Iran war escalated and led to energy supplies being targeted in both countries, consistent with Powell’s comments overnight,” said the first trader on the phone.
Senior banks from the US, Canada and Japan took a hit on Wednesday as the Iran war pushed up energy prices amid a key week of global policy meetings, Reuters reported.
“The BSP probably saw these market pressures on the local currency moving in line with macroeconomic factors,” said a second trader in a Viber message, similarly noting that the peso’s decline was mainly due to hawkish signals from US Federal Reserve Jerome H. Powell overnight.
A weak peso tends to raise the cost of imports, particularly fuel and food, which may feed into broader price pressures. This may limit the central bank’s room to cut interest rates and may revive expectations of policy tightening if inflation accelerates.
“The depreciation of the peso directly affects the local cost of these imports, but it will be the peso’s long-term weakness that would significantly curb inflation,” said a second trader.
Finance Secretary and Monetary Board Member Frederick D. Go said on Tuesday that the prolonged rise in oil prices due to the war in the Middle East may prompt the Monetary Board to raise borrowing costs early next month.
“If the price of oil continues to persist at high levels, it is likely that the Monetary Board will consider tightening at the next meeting,” said Mr. Go in an interview with Bloomberg TV.
BSP Governor Eli M. Remolona, Jr. earlier said the central bank may have to consider monetary tightening if the rise in oil prices leads to inflation.
The Monetary Board will hold its next rate-setting meeting on April 23.
If the Board raises rates in April, this will be the first rate cut by the BSP in two years or since October 2023.
The Monetary Board has been on an easy path since August 2024, cutting the policy rate by 225 basis points (bps) to a three-year low of 4.25%.
Chief Economist Rizal Commercial Banking Corp. Michael L. Ricafort noted in a Viber message that the peso would have closed slightly if not for the intervention of the BSP.
The BSP said in a statement on Thursday that it continues to intervene in the foreign exchange market to prevent inflation.
“In the peso, the BSP insists that it works in the foreign exchange market to smooth out excessive fluctuations and maintain orderly conditions. This is in line with the policy of the exchange rate of volatile conditions, with limited interventions to reduce the large fluctuations that may affect inflation rather than protecting any specific rate,” said the central bank.
Moving forward, Mr. Ravelas said the peso may remain above the P60-per-dollar level if the war in the Middle East escalates.
Trading will be closed on Friday due to the Eid’l Fitr (Festival of Ramadan) holiday. – Aaron Michael C. Sy
