Before closing at P49.98, a new 8-yr low
EXPECTATIONS of a US Federal Reserve rate hike in December continued to weigh on the Philippine peso, driving the local currency to hit the P50:$1 level in Thursday trade.
The peso opened at P49.95 to $1 on the Philippine Dealing System, weakening from Wednesday’s P49.86.
In the course of the day, it traded between P49.91 and P50.00 against the dollar, then closed at P49.98 – the weakest finish for the peso since the P49.99:$1 close on Nov. 20, 2008.
The slip confirms analysts’ forecasts that higher US interest rates and heightened political uncertainty in the Philippines could bring the peso down to the P48-to-P50 range by or before the end of the year.
The “FOMC (Federal Open Market Committee) minutes of the November meeting were released yesterday. Many participants expressed the view that it could be appropriate to raise rates relatively soon as long as incoming data and labor market conditions continue to be in line with their objectives,” said Metrobank Research in a note.
Good or bad?
Guian Angelo Dumalagan, market economist at the Land Bank, views the depreciation of the peso as generally good for the Philippines, saying it could increase the peso value of remittances by overseas Filipino workers and boost the country’s exports by making Filipino goods cheaper to foreign buyers.
“All things held constant, it could boost the Philippines’ economic growth by increasing the contribution of consumer spending and net exports to the country’s total output,” Dumalagan said.
He also explained that while a weaker peso could inflate the local currency value of the country’s external debt, this risk is relatively minimal as the country has enough international reserves to cover its external borrowing.
“The more important issue, therefore, is not the peso’s depreciation, but the potential negative impact of the protectionist initiatives of the next US president. Mr. [Donald] Trump’s protectionist stance on trade and immigration could potentially limit the country’s external trade transactions and reduce the amount of remittances from Filipinos abroad,” Dumalagan said.
He said this means that the benefits of a weaker peso to exports and remittances might just be offset by a decline in export and remittance volumes.
Another economist said while the depreciation of the peso is generally positive for the Philippines, especially for the remittance-and-export sectors, the effect could be offset by the impact of a possible shift in US policies.
ING Bank Manila senior economist Joey Cuyegkeng said the peso’s weakness is in line with the performance of other Asian currencies as external pressures became more dominant again.
“These include expectations of not only higher US benchmark policy rate next month but also expectations that 2017 would also see another 50-basis point hike,” he said.
Cuyegkeng said global markets also remain on edge over the still uncertain shape of US trade and jobs policies and fiscal spending by next year.
“External risks also include the Brexit negotiations, China growth and leverage concerns and the European Union stability,” he said.
“We are closely watching developments for now and retain our year-end 2016 P49.50 forecast,” he added.