Philippines’ peso seen to fall further

By Beting Laygo Dolor, Editor

MANILA – The actions being taken by the US Federal Reserve are putting extreme pressure on various Asian currencies, and the Philippine peso is no exception.

The peso has been falling to all-time-low after all-time-low in the past few weeks, and most bankers believe that the end is not yet in sight. Expectations are high that the peso may go as low as P60:$1 by yearend, or even sooner. And lower.

On Sept 19, Tuesday, the peso traded at 57.58 to the greenback, an all-time-low barely two trading days after it had hit the latest low of 57.43 to the dollar on Sept. 16.

The US currency continues to gain ground amid expectations of another major rate hike by the Fed.

Every time the Fed increases rates, the Bangko Sentral ng Pilipinas (BSP) has no choice but to take the same direction.

The Monetary Board (MB) – the country’s highest policy making body on fiscal matters headed by the BSP chief — is meeting later this month in order to address the latest expected hike from the Fed.

“Hawkish signals” from the Fed has been blamed for the peso’s continued depreciation.

The Fed has been using progressively higher interest rates “to bring down elevated inflation.” The Fed’s aggressive rate hikes is intended to cool down consumer demand, thereby easing rising inflation which US consumers have been dealing with this year, and which could have an effect on the coming mid-term elections.

An economist from one of the country’s biggest banks said he anticipates the peso to breach the P58:$1 level this month, possibly even this week.

Since the start of 2022, the peso has lost 12.7% of its value, or P6.481, making it one of the worst performing currencies in Asia this year.

With its import-dependent economy, the falling peso means that all imports will cost more, which in turn will cause inflationary pressure as the prices of goods and services continue to rise.

The old belief that a falling peso is good for the families and dependents of overseas Filipino workers has been belied by the fact that the increased remittances only pays for higher-priced goods and services.

The same is true for exporters, who may receive more pesos for the dollars they earn, but most of them are also dependent on imported inputs for their products.

And with interest rates now at the highest level in two decades, no appreciation of the peso can be expected in the foreseeable future.

The executive director of the think-tank Ibon Foundation, Sonny Africa, recently said that the BSP-MB could be allowing the peso to continue depreciating as part of a fiscal strategy to encourage more exports, theoretically making the economy healthier in the long run.

But the current widening trade deficit as a result of surging imports says “there is a fundamental reason for the peso to weaken,” the chief economist of a foreign bank with operations in the Philippines said recently.

In business parlance, the Philippine currency will be facing headwinds for the near term. Consumers, therefore, will need to tighten their belts further.