The Philippine peso hit its lowest level in almost 12 years as traders braced themselves for the possibility of more capital outflows next month.
The currency declined to as low as 52.60 pesos to the dollar during the morning session yesterday (Thursday, May 24), after the US Federal Reserve released details from their latest meeting that hinted at a rate hike next month.
Higher interest rates in the world’s largest economy make investing in securities more attractive, resulting in investors selling pesos to buy dollars.
The peso opened the session weaker at 52.50 and slid to 52.60 — the lowest since July 2006 — before recovering slightly to 52.45 to a dollar.
It closed the trading session at 52.55 to a dollar — weaker than the previous day’s level of 52.47. Trading was brisk with a total of $899.95 million exchanged between currencies, compared to Wednesday’s $529.9 million.
“That’s the market. It goes up and down,” Bangko Sentral ng Pilipinas [central bank] Governor Nestor Espenilla said.
BDO Unibank chief strategist Jonas Ravelas, meanwhile, said the prospects of a rate hike in the US to head off inflationary pressures would continue to provide a boost to the dollar against other currencies.
“The recent rise in oil prices and the continued outflow of foreign funds are not helping the peso either,” he added.
The central bank, however, is letting the currency seek its own level instead of expending its resources to defend it.
Espenilla pointed out earlier that the country had ample dollar reserves — about 80 billion — to meet the needs of the country, whether they be Filipinos needing dollars to pay for foreign goods and services or investors repatriating their assets overseas.
More recently, Monetary Board member Felipe Medalla Jr. said the central bank could afford to use up to $20 billion of its reserves to meet the dollar outflow needs of the country.