Peso falls on news of US Fed Reserve keeping interest rates at record lows

MANILA, Philippines—The peso fell on Wednesday following the move of the US Federal Reserve to keep interest rates in the world’s biggest economy at record lows.

The local currency closed at 42.88 against the US dollar, down by 22 centavos from the previous day’s finish of 42.66:$1.

Intraday high hit 42.60:$1, while intraday low settled at 42.89:$1. Volume of trade reached $1.225 billion from $1.15 billion previously.

The move of the US Fed is seen to allow the Bangko Sentral ng Pilipinas to keep domestic interest rates low as well.

Low rates are meant to encourage people to borrow more from banks and to use the money for consumption or investments, thereby boost the growth of the overall economy. However, low rates have the tendency to dampen the appetite of portfolio investors as these mean low yields for them.

The BSP has so far, this year, cut its key policy rates, which influence commercial interest rates, by 50 basis points, bringing down its overnight borrowing and lending rates at 4 and 6 percent, respectively, both of which are historic lows.

BSP Governor Amando Tetangco Jr. said the move of the US Fed gave the BSP room to keep its own policy rates steady at record lows, and allowed it to use such flexibility to assess market conditions before making another policy action.

“[US Fed move] should give us room to see how our past actions are filtering into the domestic growth and inflation dynamics,” Tetangco said.