Philippine Peso Hits New Record Low Against Strong Dollar Amid Inflation Fears

MANILA, Philippines — The Philippine peso sank deeper into the 62-per-dollar territory, capping the week at a new record low as lingering inflation fears amid a prolonged conflict in the Middle East continued to prop up the greenback. The local currency lost 14.5 centavos from its prior closing to finish at 62.68 versus the dollar, data from the Bankers Association of the Philippines showed. That surpassed the previous all-time low close of 62.625 set on Sept. 8. READ: Iran strikes ships, expands no-go zone outside Strait of Hormuz The local unit hit an intraday low of 62.775 yesterday before cutting its losses. Trading volume eased to $1.1 billion from $1.2 billion in the prior session. The dollar remained near a one-week high in Asian trading on Friday as fears of further disruptions to energy supplies in the Middle East lifted oil prices and bond yields, Reuters reported. Investors were also awaiting the release of US inflation data, one of the last major economic indicators due before the US Federal Reserve’s policy meeting next week. “The local currency might remain challenged from dollar strength ahead of [Friday night’s] potentially strong US consumer inflation report and growing consensus that the Fed might consider a US policy rate hike in its meeting next week,” a trader said. In a note, ING Bank said it expects the Fed to deliver a 25-basis point rate hike, a move that could boost the appeal of US dollar-denominated assets and put additional pressure on the peso. ING Bank said the Bangko Sentral ng Plipinas (BSP) could opt for another quarter-point rate hike in fourth quarter despite the weak economic growth, as inflation risks remaining elevated and core inflation yet to show convincing moderation. “Real policy rates are now close to historic lows, reducing the degree of monetary restraint,” the Dutch banking giant said. “At the same time, interest rate differentials between the Philippines and the US have narrowed materially, limiting support for the peso.” The BSP last month raised its benchmark rate by a quarter percentage point to 5 percent, its third increase since the current tightening cycle began. READ: BSP raises policy rate to 5%; peso sinks to new low Even so, the peso is now trading well beyond the 60-to-62-per-dollar range assumed by the Marcos administration for this year, underscoring the currency’s persistent weakness despite the BSP’s rate increases. Bank of America, meanwhile, said the Philippines appeared particularly vulnerable to El Niño-related shocks because of already elevated inflation, the country’s reliance on food imports and the large weight of food in its consumer price index. A weaker peso could further amplify imported inflation pressures, the bank said, while a persistently wide fiscal deficit could limit the government’s room to provide policy support. INQ