(Bloomberg) — A potential line in the sand is forming for the Philippine peso at its record low, even as the central bank maintains it doesn’t defend a specific level.
In the past nearly three months, the currency has mostly hovered around its all-time low of 61.75 per dollar first hit on April 30. It touched that level on 10 more occasions since then, including three times this week.
As the oil surge and the dollar’s strength pummel Asian currencies this year, traders are focusing on specific levels that might prompt greater central bank intervention. While dollar sales by Bangko Sentral ng Pilipinas are helping the peso find support, pressure is building on the currency as crude extends its gains.
“It will be increasing difficult and costly for BSP to hold the line at a specific level,” said Wee Khoon Chong, senior Asia Pacific market strategist at BNY in Singapore. “This will exert pressure on foreign-exchange reserves, which have already fallen this year.”
The Philippine central bank intervened in the foreign-exchange market this week, selling dollars as the US-Iran hostilities escalated. The Reserve Bank of India also stepped in to support the rupee, while in Japan investors are on high alert for further intervention as the yen weakened past the closely-watched 163-per-dollar level.
BSP tries to dampen swings, but generally allows the peso to seek its own level based on market forces, Governor Eli Remolina said in June.
Intervention can be costly. BSP has drained billions of dollars from the nation’s reserves, which have fallen more than 5% this year. In Indonesia, where the central bank has also been actively intervening, reserves have dropped by about $10 billion this year. Over the past two years, India’s RBI has amassed more than $100 billion of short dollar forward positions, a stock of commitments to sell the greenback at a future date.
The Philippines in the past also sought to draw a line in the sand for the peso, with the 59 level holding from 2022 to late last year. The peso is forecast to be largely steady by the end of this quarter, according to a Bloomberg survey.
“There is a strong chance the BSP can hold this level in the short-term,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. “The BSP is wary that the weak peso will fan inflation and so they will be determined. But should oil keep rising and the dollar strengthen, the path of the peso is still for more weakness ahead.”
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