Philippine Peso Slips Even More: Now Pay Php54 For $1

Manila: Ahead of a central bank rate decision meeting this week, the Philippine peso hit a fresh multi-year low at Php54.010 against $1 (09:00 UTC) on Monday, from Php53.69 on Friday June 17. ).

Central bank data showed the peso slipping to Php53.50 (buy rate) against the US dollar; it was selling dollars for Php54.00 on Monday. The UAE dirham stood at Php14.52 on Monday.

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The Asian currency fell to its lowest level in more than three and a half years.

The peso led the losses on Monday with its 0.5% drop that dragged the currency to its lowest since October 2018.

Other Asian currencies traded mixed amid recession fears.

Bangko Sentral ng Pilipinas (BSP), the country’s central monetary authority, is expected to decide on possible rate hikes this year to curb rising inflation, following a recent decision by the US Federal Reserve, which led to a chorus of rate hike decisions from most central banks.

Felipe Medalla, the new BSP governor, has officially called for at least two rate hikes this year.

It also left room for further policy rate hikes due to high inflation and a higher-than-expected balance of payments (BOP) deficit.

“Floating” rates will increase

Higher interest rates mean higher borrowing costs for businesses as well as auto and home loans. Mortgages based on “floating” rates could also increase.

The central monetary authority of the Philippines is expected to make a policy decision on rates on Wednesday. The meeting is currently the focus of market analysts who are keeping a close eye on the country’s current account balance, which is expected to see larger deficits in 2022 and 2023 than initially forecast.

Depending on the rate hike, the peso could see further weakness due to the greater impact of higher oil prices, which the Philippines depends on imports, analysts said.

Meanwhile, the growing trade deficit will continue to put downward pressure on the currency.

Recession fears: what a higher balance of payments deficit means

The peso has fallen nearly 11% over the past 12 months against the US dollar.

Amid the falling peso and external risks, the Philippines’ central bank said on Friday it expects the country’s current account balance (balance of payments, BOP) to post deficits in 2022 and 2023. than previously expected.

A balance of payments deficit means that the country imports more goods, services and capital than it exports.

By implication, it must borrow from other countries to pay (in US dollars) for its imports, thus increasing the demand for US currency.

For 2023, the current account deficit is expected to reach $20.5 billion, or 4.4 percent of GDP, higher than the previous projection of $17.1 billion, or 3.7 percent of GDP.

Philippine loan rates

The Overnight Lending Facility (OLF) rate stood at 2.75% on Monday, June 20, up 0.25% from a year ago, according to BSP data.

The overnight deposit facility, meanwhile, rose 0.25% today to 1.75% from year-ago levels (1.50%).

Friday, the Philippine Dealing system, the central clearing house of the country, recorded 962.5 million dollars of foreign exchange transactions, against 1.141 billion dollars the previous one.

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