Peso weakens on lower GIR, Fed worries

THE PESO ended weaker against the dollar on Monday as the country’s reserves continued to decline and on expectations of more monetary tightening by the US Federal Reserve.

The local unit closed at P55.55 versus the dollar on Monday, losing 35 centavos from its P55.20 finish on Friday, data from the Bankers Association of the Philippines’ website showed.

The peso opened Monday’s session sharply weaker at P55.50 against the dollar. Its weakest point was at P55.72, while its intraday best was at P55.45 versus the greenback.

Dollars exchanged went down to $886.97 million on Monday from $1.22 billion on Friday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the peso’s depreciation to the decline in the country’s gross international reserves (GIR) fell below the $100-billion level for the first time since August 2020.

Data from the Bangko Sentral ng Pilipinas (BSP) showed GIR stood at $98.83 billion as of end-July, 2% lower than the $100.85 billion level as of end-June.

Higher inflation and record high outstanding national debt also affected sentiment, Mr. Ricafort said.

Headline inflation stood at a near four-year high of 6.4% in July, from 6.1% in June and 3.7% a year ago.

Meanwhile, the government’s outstanding debt rose to a record-high P12.79 trillion at the end of June, beating the previous high of P12.76 trillion in April.

The peso was also weaker as stronger US jobs data supported a further Fed hike of 50 or 75 basis points (bp) in their next policy meeting, Mr. Ricafort added.

“The peso weakened amid heightened bets of a 75-bp rate hike by the US Federal Reserve in September following the strong US labor reports for July 2022. The local currency might rebound tomorrow from expectations of an upbeat Philippine GDP (gross domestic product) report,” a trader said. The Philippine GDP report is set to be released on Tuesday.

Fed Chair Jerome H. Powell said last month the US central bank may consider another “unusually large” rate hike at their Sept. 20-21 policy meeting as inflation in the world’s largest economy remains at a multi-decade high.

The Fed raised interest rates by 75 bps for a second straight meeting in July. It has hiked borrowing costs by a total of 225 bps since March.

For Tuesday, Mr. Ricafort gave a forecast range of P55.40 to P55.60 per dollar, while the trader said the peso could move from P55.45 to P55.65. — D.G.C. Robles