Philippine peso plunges to near 13-year low

Philippine peso plunges to near 13-year low

SINGAPORE: The Philippine peso plunged to its lowest in nearly 13 years against the US dollar on Tuesday (Sep 25) amid talk of another interest rate hike by the central bank, while US-China trade tensions continue to cloud the global outlook.

The peso fell as low as 54.66 per US dollar on Tuesday, its weakest level since Nov 22, 2005, when it touched 54.99 versus the dollar.

Against the Singapore dollar, the peso fell to an intraday low of 39.87, the lowest since Jun 14, when it touched 39.98.

Ms Gina Macalanda, a foreign domestic worker in Singapore, said that the current situation favours Filipino overseas workers like herself.

"The cost of living has become very high in the Philippines. All the products - especially food - has become very expensive.

"A weakening peso benefits overseas foreign workers because the exchange rate is high and I can get more pesos for every Singapore dollar I change," she said.

POTENTIAL RATE HIKE

The Philippines central bank is expected to raise rates by another 50 basis points on Thursday, in order to curb inflation and shore up the shaky peso currency, a Reuters poll showed.

The central bank has raised interest rates by 100 bps since May, including 50 bps on Aug 9, in a bid to tamp down inflationary pressures, which have been steadily rising since January due to higher taxes, a weak peso, and rising food and fuel costs.

In August, inflation surged to a more than nine-year high of 6.4 per cent, way above the central bank's 2-4 per cent comfort range, prompting policymakers to say they would take "strong immediate action" to manage the pace of price increases.

Some analysts see no immediate respite from high inflation with global oil prices on the rise and crop losses after the region was hit by a super typhoon, leading them to believe Thursday's anticipated rate hike would not be the last for the year.

"Inflation risks appear front and centre on the policy radar," Barclays said in a note, adding the central bank will likely keep its hawkish rhetoric.

"The continued upside risks to inflation beyond 3Q mean that there is greater likelihood of further monetary tightening in the next six months," HSBC economist Noelan Arbis said.

An aggressive rate hike should also shore up the peso, which has slumped nearly 8 per cent against the US dollar so far this year.

But it may not give the peso much chance to rebound, as the U.S. Federal Reserve is expected to raise rates hours earlier, supporting the dollar.

The BSP, however, expects the peso to strengthen in the last quarter of 2018, aided by the usual rise in remittances of Filipinos overseas during Christmas holidays, Deputy Governor Diwa Guinigundo said in an interview with CNBC.

Inflation is expected to remain elevated for the rest of the year, he said, but it should start to ease in the last quarter as measures to address food supply constraints kick in, such as the importation of rice, meat and fish.

"We have done a lot of mitigating measures to make sure that food prices will continue to be more or less stable for the rest of the year," Guinigundo said. "So any inflation pressure coming from the oil side maybe mitigated to a large extent."

Source: CNA/Reuters/aj

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