AN under-pressure Philippine peso is making its third attempt since August to breach a key trigger point for central bank intervention, as broad gains in the dollar reduced the appeal of Asian assets.
The currency slid to as weak as 56.98 per dollar last Wednesday, within a whisker of the closely-watched 57 level. Earlier this week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. signaled that officials are intervening to defend the peso there to prevent even sharper depreciation.
“In the near-term, [the] [BSP] can hold the 57 level, with FX reserves still quite ample,” said Michael Wan, a senior currency analyst at MUFG in Singapore. “Nonetheless, I don’t think the 57 level is necessarily sacrosanct over the medium term. BSP should allow the peso to weaken gradually, assuming that the moves are not too volatile, and other regional currencies also weaken.”
The peso is among the worst-performing Asian currencies this quarter, as an increase in crude prices hurt sentiment toward the oil-importing nation and the dollar advanced amid a hawkish Federal Reserve. The Philippine currency has been hovering around levels slightly stronger than 57 since mid-August, raising speculation that policymakers see that as a bottom line for the peso.
Defending a specific level in the dollar-peso pair is nothing new to the Philippine central bank, which spent billions of dollars of its FX reserves last year to prevent deeper currency weakness. Those operations intensified after the peso plummeted to a record low of 59 in September.
The Philippines imports almost all of its oil requirements and crude prices marching toward $100 a barrel are weighing on the peso as is the elevated global cost of rice, a staple food. Foreign funds have unloaded $559 million of local stocks this month, also weighing on the peso.
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