Peso rebounds as oil drops on fears of global slowdown
THE PESO rebounded on Wednesday as concerns over a possible global economic slowdown drove oil prices down overnight.
The local unit ended trading at P56.26 per dollar on Wednesday, appreciating by 11 centavos from its Tuesday close of P56.37.
Still, year to date, the local unit has weakened by 10.31% or by P5.26 from its close of P51 versus the dollar on Dec. 31, 2021.
The peso opened Wednesday’s session stronger at P56.31 against the dollar. Its weakest showing was at P56.43, while its intraday best was at P50.23 versus the greenback.
Dollars exchanged dropped to $994 million on Wednesday from $1.39 billion on Tuesday.
The peso strengthened after the sharp decline in global oil prices for the first time in three months, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
This could lead to more rollback in local fuel pump prices and could ease inflationary pressures, as prices of other global commodities also eased on concerns over possible US recession, Mr. Ricafort said.
“The peso appreciated following the substantial decline in global oil prices amid reports of new lockdowns in China,” a trader said in an e-mail.
Brent oil futures closed under the $100-per-barrel level on Tuesday as investors sold crude on concerns that aggressive interest rate hikes by the US Federal Reserve to curb inflation will result in an economic slowdown that will hit oil demand.
Brent crude futures settled $7.61, or 7.1% lower, at $99.49 a barrel, its lowest since April 11. US West Texas Intermediate (WTI) crude was down $8.25, or 7.9%, at $95.84, also the lowest in three months.
On Wednesday, oil prices paused their overnight declines. Brent crude was little changed at $99.60 a barrel with US WTI crude at $95.89.
For Thursday, the trader said the peso may weaken anew due to potentially faster US inflation, which could give the Federal Reserve another reason to continue its aggressive rate hike path.
Both the trader and Mr. Ricafort gave a forecast range of P56.15 to P56.35 per dollar.
CENTRAL BANK ACTION
Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla last week said the central bank is prepared to raise benchmark rates by 50 basis points (bps) at their Aug. 18 meeting to keep inflation in check after the peso on Thursday breached the P56 level against the dollar for the first time in more than 17 years.
He said the US central bank’s hawkish stance has placed “strong depreciation pressures” on global currencies such as the peso, which adds to inflation risks.
Mr. Ricafort on Wednesday said it remains to be seen what the BSP will do to support the peso, which is inching closer to its record low of P56.45 a dollar set on Oct. 14, 2004. On Tuesday, the peso hit this all-time low as its worst showing intraday, but recouped some of its losses as the session ended.
“Let us see how they would use their toolkit related to the exchange rate vis-a-vis the inflation-targeting framework since 2001 and the price stability mandate,” he said.
Former Socioeconomic Planning chief Ernesto M. Pernia said in an interview with One News PH that the BSP should continue raising rates to temper inflation after the headline print hit 6.1% in June, bringing the six-month average to 4.4%, above the central bank’s 2.4% target.
“Our central bank interest rat … it’s usually just 2%. It was not very low, but they kept it at low because they wanted the economy to really perk up because of the pandemic. But now that inflation is rearing its ugly head, it’s already 6.1% inflation rate, which is 2.1% higher than the [target] band… It’s time for the central bank to really be raising interest rates to dampen inflation,” Mr. Pernia said.
“Some people say that … the central bank raised interest rates too late. It should have been done sometime in February when the inflation rate was already beginning to peak. It’s only recent that the central bank decided to raise policy rates by 25 basis points. The next one is likely to be 50 basis points,” he added.
Mr. Pernia said inflation has an “overarching” impact, with the poor especially seen to be adversely affected by rising prices. — K.B. Ta-asan with Reuters