The peso fell to a new five-year low against the dollar on Tuesday in reaction to the Chinese central bank’s decision to let the yuan depreciate against the greenback.
The Philippine currency weakened to P45.93 to $1, losing 18 centavos from its P45.75 close on Monday.
Tuesday’s close was the lowest finish for the peso since it settled at P45.97 on July 27, 2010.
“The peso was bloodied on Tuesday in reaction to the surprise move by the PBOC to devalue the Chinese yuan. Asian currencies quickly followed suit in order to maintain competitiveness,” said Nicholas Antonio Mapa, associate economist at the Bank of the Philippines Islands.
The People’s Bank of China earlier surprised the markets by allowing the yuan—also known as the renminbi—slide by almost 2 percent against the US dollar, aiming to make the country’s exports more competitive overseas. The PBoC set its daily reference rate for the yuan at 6.2298 to $1, compared with 6.1162 yuan the previous day, effectively 1.86 percent lower. It marked the biggest drop since China reformed its currency system in 2005 by unpegging the yuan from the greenback, Agence France-Presse reported.
Mapa said monitoring the currency movement is needed to check whether this is a one-time devaluation move on the part of the PBOC or further depreciation would be pursued, adding that the peso should trade within this new range.
“As expected, the initial market reaction to the announcement of the yuan devaluation was weakness among the regional currencies, including the peso,” BSP Governor Amando Tetangco Jr. told reporters on Tuesday.
Tetangco said the local unit will continue to be affected by external developments, such as the latest PBOC action, but added that market participants are also expected to put value on the country’s sound macroeconomic fundamentals.
“Should the adjustment in the yuan, however, become effective in supporting Chinese exports in the near term, that could help sustain regional trade and in turn help support global growth,” he said.
The peso opened at P45.70 to $1 on the Philippine Dealing System (PDS) on Tuesday before trading between P45.67 and P45.97.
Total volume transacted on the PDS rose to $1.106 billion from $541.8 million in previous trading.