The peso’s recovery to around 58 against the US dollar last week will help ease inflationary pressures, an economist said over the weekend.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said in a report the local currency strengthened last week, following Fitch Ratings’ affirmation of the country’s investment-grade score, continued reopening of the economy and the softening of global crude prices.
“The peso also continued to appreciate after global crude oil prices still lingered near 9-month lows [since Feb. 3, 2022 or before the Russia-Ukraine war started on February 24, 2022], thereby could help narrow the country’s trade deficit/net imports from record levels in recent months and could also help ease inflationary pressures,” Ricafort said.
He said that while the peso had depreciated 13.7 percent or P6.97 against the US dollar since the start of the year, its weakness was nearly similar to those of other currencies in the region.
“The peso’s depreciation since the start of 2022 has been recently similar/not too far to the depreciation in other ASEAN/Asian currencies such as the Thai baht, Chinese yuan, Malaysian ringgit, among others,” Ricafort said.
Ricafort said the currency trend highlighted “the effects of external/exogenous factors on the peso that are beyond the country’s reasonable control, in terms of higher US interest rates/bond yields that increased the allure/attractiveness of the US currency.”
The peso closed at 57.97 a dollar on Friday, its strongest level since 57.48 on Sept. 20, 2022. It settled at a record low of 59 per dollar four times in October, an indication that the BSP intervened in the foreign exchange market to prevent the local currency from hitting the 60-a-dollar level.
Finance Secretary Benjamin Diokno signaled possible intervention in the peso exchange rate market by using about $10 billion of the country’s gross international reserves.
Ricafort said the recent affirmation by Fitch Ratings of the country’s investment grade score of “BBB” with a negative outlook buoyed the peso against the greenback last week.
This is a vote of confidence on the country’s macroeconomic fundamentals, he said.
Ricafort said the peso also drew strength from the government’s earlier move of further easing mask-wearing mandate, manifesting continued reopening of the economy towards greater normalcy.
Bangko Sentral ng Pilipinas Governor Felipe Medalla said the Philippine economy was strong enough to withstand local policy rate hikes going forward.
The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, raised on Sept. 22 the benchmark policy interest rate to 4.25 percent to rein in the elevated inflation and support the depreciating peso. Inflation reached 6.9 percent in September.
The BSP’s move came following an earlier 75-basis point hike by the US Federal Reserve to tame the persistently high inflation in the world’s biggest economy.
The BSP increased the overnight borrowing rate by 225 basis points this year from the record low of 2 percent in 2021.
