Peso defense measures stall currency’s slide
The Philippine peso seems to have hit a floor since sinking to 59:$1 on Oct. 3, apparently arresting a downslide that started in mid-June.
Over the past three weeks, the local currency has bumped into its record weakest position against the US dollar three more times—Oct. 10, 13 and 17—but never going past the threshold toward 60:$1.
On Friday, the peso closed at 58.75:$1 against the greenback, appreciating for the third consecutive trading day since 58.945:$1 on Oct. 19.
This developed as the Philippines joined other countries in the region openly resorting to foreign exchange market intervention to arrest the dive of their respective currencies.
Nicholas Mapa, senior economist at ING Banks, noted that officials of Bank Indonesia and the Philippines’ Department of Finance expressed commitment to foreign exchange stability over a period of just two days.
“Bank of Indonesia Governor Perry Warjiyo vowed to ‘control’ the Indonesian rupiah after hiking their policy rate by 50 basis points,” Mapa said.
$10-B war chest
Finance Secretary Benjamin Diokno pledged to prevent the Philippine peso from hitting 60:$1 with $10 billion worth of gross international reserves (GIR) and 100-bp worth of rate hikes by the end-2022,” he added.
Diokno was in Bangkok, attending the 29th Apec Finance Ministers’ Meeting being hosted by Thailand.
In a commentary, ING Bank observed that foreign exchange intervention was back on the table even in Japan, where the Japanese yen has weakened past 150 against the US dollar.
The Dutch bank said most drivers of the US dollar’s strength have remained intact despite slight corrections, and that markets have pushed their expectations on the peak of the US Federal Reserve’s rates to 5 percent from 3.25 percent currently.
“Unless the Bank of Japan shifts to a less dovish stance (no hints of this happening so far), FX interventions remain the most viable option,” ING Bank said.
In the Philippines, the GIR bled out $4.4 billion in September alone, ending the month with $93 billion from $97.4 billion at the end August.
During September, the peso fell to new all-time weakest positions against the US dollar 11 times, twice during four consecutive trading days. In this period, the local currency lost P2.57 to the green back, starting the month at 56.42:$1 and ending at 58.99:$1.
The central bank’s ollar reserves reached an all-time high of $110.12 billion in December 2020, and has been decreasing month after month since $107.8 billion last February.
Aside from intervening in the currency market, Diokno’s reference to additional policy rate hikes agrees with ING Bank’s prediction for the remaining two meetings of the Monetary Board for this year — in November and December.
Still, ING Bank is leaving room for the BSP to be even more hawkish.
“BSP Governor Felipe Medalla vowed to retain his hawkish stance until he achieves his price stability objective so we expect further tightening in 2023,” Mapa said earlier this month.
“[Medalla] has acknowledged that recent [peso] weakness threatens the inflation outlook,” he added. “Intensified pressure on the [peso] could force BSP to hike more aggressively to close out 2022.”
Michael Ricafort, chief economist at the Rizal Commercial Banking Corp., said Diokno’s latest statements in Bangkok were consistent with the earlier signals by the government’s economic team.
“[The BSP has] a good track record of stabilizing the peso for 18 years or since 2004 when the record high back then was maintained at 56.45,” Ricafort said. “All of these measures would help prevent any speculative attack on the peso.”
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