Philippine Peso Falls Back to Record-Low ₱59:$1

The Philippine peso slid further against the US dollar on Thursday, closing at a record-low ₱59:$1, a level last seen on November 26 and originally recorded in October 2022. This marked the peso’s fifth consecutive trading day of depreciation.

The decline follows the Bangko Sentral ng Pilipinas (BSP) Monetary Board’s decision to cut policy rates by 25 basis points, reducing the reverse repurchase (RRP) rate to 5.75%.

Factors Behind the Depreciation

• Policy Rate Cut: BSP’s move signals a more accommodative monetary stance, which typically weakens the currency.
• Higher Inflation Forecasts: The central bank raised its 2024 inflation projection to 3.2% from 3.1%, factoring in recent weather disturbances.
• Widening Balance of Payments Deficit: The country recorded a $2.276-billion deficit in November, the largest in over two years, which contributed to the peso’s weakness.
• Local Equities Decline: The Philippine Stock Exchange index (PSEi) dropped 1.14% to 6,395.60, its lowest level in 5.5 months.

Insights from Analysts and BSP

RCBC Chief Economist Michael Ricafort pointed to the combined effects of the BSP’s rate cut, higher inflation forecasts, and negative market sentiment driven by the payments deficit and equities slump.

BSP Governor Eli Remolona Jr. noted that while the central bank does not target specific exchange rate levels, it monitors the passthrough effect of a depreciating peso on inflation.

“At some point, if the peso keeps depreciating, it begins to have an effect on inflation. For now, the effect has been modest,” Remolona said.

Outlook

The peso’s trajectory will depend on both domestic monetary policy adjustments and external factors such as US dollar strength and global market trends. Continued monitoring of inflation and economic data will be key as the BSP navigates its monetary easing cycle.