Philippines draws line in sand for peso weakness at 59 to US$1

A plunging local currency has been exacerbating consumer woes arising from soaring prices. PHOTO: AFP

MANILA – The Philippine central bank is defining the limit of its tolerance for the local currency’s weakness, with the line seen at 59 per US dollar.

The peso dropped to 59 on Thursday, a record low against the greenback that has now held for more than three weeks. The currency has slumped more than 13 per cent this year.

“With the dollar below its recent highs, it allows the central bank to draw a line in the sand at 59 per dollar for now,” said Ms Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. “But a fresh leg up in the dollar can easily lead the peso to breach 60, a key psychological level for the general public.”

As the US dollar’s unrelenting strength pummels its global peers, traders are focusing on specific levels that might prompt greater central bank intervention.

In Japan, investors are on high alert for further intervention as the yen weakened to just shy of the closely watched 150-per-dollar level.

The peso’s weakness has already drawn the attention of President Ferdinand Marcos Jr, who said this week the nation is prepared to defend the currency as its slide this year threatens to fuel inflation.

The central bank has repeatedly said it is intervening to curb volatility in the currency, while not defending a specific level.

“We intervene. We won’t tell you which days and at what rates,” Governor Felipe Medalla told Bloomberg News in a mobile phone message earlier this week.

The central bank has drained billions of dollars from the nation’s reserves, which have fallen more than 14 per cent this year. The regulator is also monitoring currency transactions for potential speculation, Finance Secretary Benjamin Diokno said last week.

The peso will likely end the first quarter of 2023 at 59.2 per US dollar, according to the median forecast in a Bloomberg survey. 

“The trend of the peso remains tenuous with downside risks that could emanate from Federal Reserve hikes and dollar strength,” said Mr Robert Dan Roces, chief economist at Security Bank in Manila. BLOOMBERG

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