The Philippine peso weakened further against the US dollar on Wednesday, touching a new low in more than 10 years, as external developments such as Federal Reserve’s recent rate hike pronouncements and uncertainties on Trump administration’s tax policies affected the market.
The local currency closed 21 centavos weaker at P50.50:$1 on Wednesday. It was its weakest finish since settling at P50.54:$1 on September 11, 2006.
It opened at P50.32:$1 before trading between P50.32 and P50.50.
“The peso depreciated today, after Fed Chair [Janet] Yellen affirmed the US central bank’s plan to hike interest rates gradually, despite declining inflation expectations,” said Land Bank of the Philippines market economist Guian Angelo Dumalagan.
In a speech, Yellen has reiterated calls for gradual rate hikes, saying a tightening labor market will eventually trigger higher wages and overall prices.
The Bangko Sentral ng Pilipinas (BSP) said the peso weakness is mostly externally driven.
Central bank Deputy Governor Diwa Guinigundo noted that one of the external developments that affected investor sentiment is the expectation that US Congress will not expedite President Donald Trump’s tax measures and fiscal spending.
“The International Monetary Fund was reported to have a more pessimistic view of the US economy which could affect the outlook for emerging markets including the Philippines,” he also said in a text message to reporters.
The multilateral institution cut its forecast for US economic growth for this year to 2.1 percent from a previous estimate of 2.3 percent mainly on the back of the Trump administration’s uncertain policies on tax reform.
“Hence, regional currencies depreciated across the board. Finally, it’s quarter and semester end and banks are servicing foreign exchange requirements of their corporate clients. Heavier than usual,” Guinigundo added.
The peso first touched the P50:$1 level on November 24 last year as bets on an interest rate hikes in the US, which actually happened in December, favored the dollar. It depreciated by 5.35 percent against the US dollar in 2016.