Peso plunges to ₱58 vs. dollar; PSEi sinks back to 6,300 level

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Metro Manila (CNN Philippines, September 21) — Both the Philippine peso and local shares continued their descent on Wednesday as markets await the United States Federal Reserve’s next move, which is widely seen as another hefty interest rate increase.

The peso ended trading at ₱58 against the dollar, falling past the record-low close of ₱57.48 posted a day ago, according to Bankers Association of the Philippines data.

Wednesday’s close was also the currency’s weakest value within the day. Meanwhile, its ₱57.70 open is likewise its strongest point during the intraday trading.

“The recent weakening of the peso can indeed be attributed to the anticipation of still narrower interest differential with the US,” Oxford Economics assistant economist Makoto Tsuchiya told CNN Philippines in an email.

Tsuchiya said they expect the Fed to hike rates by another 75 basis points or three-quarters of a percentage point, in line with most market expectations.

“Even if the consensus forecast for the BSP proves to be correct, which is 50bps, the interest differential will still narrow,” added Tsuchiya.

The Asian Development Bank also said the Fed’s likely rate hike will continue weighing on the peso and other currencies in the region.

“The Philippines is not at the extreme end. It's actually very much close to the average for the region, so much of the depreciation in the Philippine peso reflects not so much weakness in the peso but strength in the dollar,” ADB director of macroeconomics research Abdul Abiad said in a briefing.

Meanwhile, the Philippine Stock Exchange index (PSEi) sank to the 6,300 level for the first time in over a month.

The PSEi finished at 6,341.69, down 1.66% from Tuesday’s close. It marked its worst performance since Aug. 2, when the index ended at 6,362.30 before recovering to 6,430.08 a day after.

RELATED: PSEi dives back to 6,400 level as investors await Fed, BSP decision 

“Philippine shares were sold on the first day of the FOMC's (Federal Open Market Committee) meeting as investors braced themselves for another interest rate hike announcement later,” said Regina Capital managing director Luis Limlingan on Viber.

Whether the Fed's policy tightening will continue depends on US inflationary pressures, said Abiad. He noted that while US headline inflation fell, core inflation or the measure of increase in prices of non-food and non-energy goods rose quicker than expected in August