THE Philippine peso could test new lows in the near term if the dollar stays strong and oil prices remain elevated, according to analysts.
Experts said this after data from the Bankers Association of the Philippines (BAP) showed that the local currency fell to a fresh record low of P62.625 against the dollar on Tuesday.
The rate is 3.9 centavos weaker than its P62.58 finish against the greenback on Monday.
For the month of September alone, this is the fourth time the peso hit a fresh all-time low.
Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines (UBP), said the peso’s depreciation reflects a combination of external factors, including ‘elevated oil prices, persistent inflation concerns, and higher US Treasury yields, which have supported demand for the US dollar.’
Asuncion said the peso may remain under pressure in the near term as markets continue to assess developments in oil prices, global inflation and monetary policy expectations.
‘While further weakness cannot be ruled out, the pace and extent of any depreciation will depend largely on evolving external conditions and shifts in global risk sentiment,’ the chief economist of Union Bank of the Philippines explained further.
Looking ahead, Jonathan L. Ravelas, senior adviser at Reyes Tacandong and Co., said: ‘The peso may remain under pressure and could test new lows in the near term if the dollar stays strong and energy prices remain elevated.’
The foreign exchange analyst said the peso’s direction will depend more on global developments than domestic factors.
‘Once we see the US dollar lose momentum, oil prices stabilize, or global risk sentiment improve, the peso should find support and gradually recover,’ added Ravelas.
Ravelas said, however, he does not expect a ‘disorderly depreciation’ because the Bangko Sentral ng Pilipinas (BSP) has ‘adequate policy tools and reserves to manage excessive volatility.’
He expects the peso to stay within the 62.60-62.90 level in the near-term.
Impact on households, businesses, markets
Miguel Chanco, Chief Emerging Asia Economist at Pantheon Macroeconomics, explained to the BusinessMirror via e-mail that the weakness of the local currency will ‘certainly be a burden from an economic activity standpoint’ and affect consumers and businesses buying imported goods.
However, he said there are bigger headwinds in play for both-such as falling confidence, weak household balance sheets, and below-average capacity utilization.
‘That will matter more than the pinch of a weaker peso. At most, the falling PHP is merely adding insult to already bad injuries,’ Chanco explained further to this newspaper.
Chanco said it’s ‘quite clear’ that the Philippine peso has underperformed ‘massively’ against its peers in the region, at least over the past month or so, with most other currencies up against the US dollar, due in part to the dollar’s ‘downward retracement.’
Within the trading session on Tuesday, the peso hit an intraday low of 62.675 against the greenback while its strongest point was seen at 62.48 per dollar.