Peso posts sharpest drop in 10 months
By Doris Dumlao
Philippine Daily Inquirer
First Posted 03:20:00 07/04/2008
Filed Under: Foreign Exchange Markets, inflation
MANILA, Philippines—The peso on Thursday closed at 45.50 to the dollar—its weakest exchange rate in 10 months—as rising inflation across Asia soured investor appetite on regional financial markets.
The drop was a hefty 0.30 from Wednesday’s finish of 45.20 to the greenback, while global oil prices rallied to a new record high above $144 per barrel, spooking investors further.
“It’s the same story across the region,” said Jose Emmanuel Hilado, treasury dealer at Banco de Oro Unibank Inc. “Everyone’s playing on the inflation story.”
Hilado said speculative pressures were contributing to the peso’s sharp depreciation in recent days.
The volume of trading on the currency market fell to $568.5 million from $608.65 million on Wednesday.
The peso is at its lowest rate since closing at 45.57 to the dollar on Sept. 19, 2007.
“But sooner or later, it will play out,” Hilado added, estimating the next key barrier at 45.60 to the dollar.
The peso has lost 4.22, or 9.3 percent, against the dollar so far this year. From being Asia’s best-performing currency last year, when it rallied by nearly 19 percent, it is now among the region’s worst performers.
The central bank, Bangko Sentral ng Pilipinas (BSP), expects a double-digit, 14-year-high inflation rate to be recorded for June. But it also expects a slowdown in the fourth quarter.
Hilado said, “The market is anticipating what central banks in the region will do to contain inflation. They are watching BSP and other central banks to decisively act, but it’s not as simple as fighting inflation using interest rates.”
He noted that pressures on consumer prices were mostly coming from the upswing in commodity prices, particularly of oil, rather than demand.
A Monetary Board report, based on minutes of a meeting the policymaking body of the BSP held in June, cited a need for “preemptive action against emerging second-round effects” of inflation, even as it stressed rising inflation expectations.
“The upside risks to inflation include exchange rate volatility, continuing high world oil prices, possible increases in electricity rates and petitions for transport fare increases (as recent adjustments were only provisional) and possibility of higher-than-expected wage hikes in regions where wage petitions have not yet been acted upon,” the Monetary Board said in the report it released Thursday.
“Moreover, despite signs of prices easing in some commodities such as wheat, food inflation is likely to remain elevated as world prices are unlikely to fall back to their pre-2007 levels,” it added.
The board also took note of indications that supply-driven pressures were beginning to feed into demand. With editing by INQUIRER.net
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