Peso drops further after Fed tightening

THE PESO weakened further against the dollar on Thursday after the US Federal Reserve delivered a fourth straight 75-basis-point (bp) rate increase to rein in inflation.

The local unit closed at P58.80 versus the greenback on Thursday, shedding 33 centavos from its P58.47 finish on Wednesday, data from the Bankers Association of the Philippines showed.

The peso opened Thursday’s session at P58.40 against the dollar. Its intraday best was at P58.30, while its worst showing for the day was at P58.87 versus the greenback.

Dollars exchanged inched up to $847.7 million on Thursday from $844.15 million on Wednesday.

Currencies across Asia depreciated against the dollar in response to the Fed’s decision, China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

“The peso’s depreciation followed a broader dollar strength after the Fed hiked… and Fed Chair Powell’s statement of a higher terminal rate for the Fed against what they plotted in their September meeting,” Ms. Velasquez said.

The US central bank has so far hiked borrowing costs by 375 bps since March, bringing the fed funds rate to a level within 3.75-4%. 

The US central bank said its battle against inflation will require more rate hikes. However, Fed Chairman Jerome H. Powell said even if policy makers scale back future increases, they remain undecided about how high rates need to be to get inflation under control.

The Bangko Sentral ng Pilipinas (BSP) chief’s statement on Thursday following the Fed’s decision also helped prevent the peso from declining further, Ms. Velasquez said. 

“Governor Medalla’s statement before markets opened today on cementing a matching rate hike for the BSP likely helped in preventing a greater depreciation today. We think that this statement removed some uncertainty on how the BSP will act in its next meeting, warding off market volatilities,” she added. 

BSP Governor Felipe M. Medalla on Thursday said the Monetary Board will raise benchmark interest rates by 75 bps at its Nov. 17 meeting to match the Fed as it seeks to stabilize prices. The central bank has raised rates by 225 bps since May.

The peso also weakened after the government’s outstanding debt hit a new record high, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The National Government’s outstanding debt rose to P13.52 trillion as of September due to the peso’s depreciation and increased local borrowings, the Bureau of the Treasury reported on Thursday.

For Friday, Ms. Velasquez said the market will monitor US data releases to see if previous Fed hikes have affected the world’s largest economy.

Mr. Ricafort expects the peso to move from P58.65 to P58.85 on Friday. — K.B. Ta-asan