The Philippine peso weakened to a new record low against the dollar on Thursday as the market weighed on the possibility that the Bangko Sentral ng Pilipinas (BSP) could cut interest rates before the US Federal Reserve.
The local currency closed at P59.46 per dollar, down two cents from Wednesday's record low of P59.44, data from the Bankers Association of the Philippines showed.
The peso opened slightly stronger at P59.43 in Thursday's session, touched a high of P59.35 intraday, and weakened to a low of P59.47. Dollar trading volume increased to $1.079 billion, up from $951 million recorded the previous day.
“The dollar-peso closed higher on prospects of narrowing the interest rate gap, with the BSP expected to cut rates ahead of the Fed,” a trader said by telephone.
Another trader said the peso continued to weaken after recent US producer inflation and retail sales data underlined the US economy's resilience, boosting expectations that the Fed will keep policy rates unchanged in coming months.
Rizal Commercial Banking Corporation Chief Economist Michael L. Ricafort said market expectations of a BSP rate cut at the February policy meeting also weighed on the peso.
BSP Governor Eli M. Remolona, Jr. said last week that a rate cut “remains on the table” at the Monetary Board's February 19 meeting but is “unlikely” as the central bank nears the end of its easing cycle.
The BSP has reduced its benchmark rate by a total of 200 basis points from August 2024, bringing the policy rate to a more than three-year low of 4.5%.
Despite the peso's weakness, the BSP sees no need for immediate intervention. Palace press officer Clarissa A. Castro said the central bank closely monitors exchange rate movements and is ready to take action if necessary.
“The Bangko Sentral ng Pilipinas continues to monitor the peso-dollar exchange rate to take appropriate action if needed,” he said at a news briefing in Filipino. “For now, the central bank is confident that intervention is not needed.”
He said the peso's depreciation reflected global developments, including the US dollar's strength driven by expectations over Fed policy and geopolitical tensions abroad.
He said the government was working to mitigate the impact of the weak peso by slowing price growth, supporting investment and strengthening key economic sectors.
Michael Wan, senior currency analyst at MUFG Global Markets Research, said the peso may remain more sensitive to oil price fluctuations than some of its regional rivals, although further rises in oil prices are not his base case.
“Further increases in oil prices are not our base case, and we will watch if the peso shows some weakness in these recent oil prices,” he said.
Traders said the peso could continue to test record lows until the BSP and Fed hold their respective policy meetings unless the US central bank signals a shift towards rate cuts.
However, activities will remain dependent on data, particularly US inflation and labor market indicators.
For Friday, the first trader sees the peso trading between P59.20 to P59.50 per dollar, while the second trader expects a range of P59.25 to P59.50.
Mr. Ricafort said the local currency could move from P59.35 to P59.55, noting that strong foreign exchange reserves and continued net foreign buying in the local stock market could help mitigate further depreciation. — Aaron Michael C. Cy