Peso sinks to ₱58.50 vs. dollar, PSEi tumbles to 6,200 mark over Fed, BSP hikes

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Metro Manila (CNN Philippines, September 23) — The Philippine peso and local shares performed worse on Friday as investors digest the interest rate hikes of the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve amid rising commodity prices.

The peso registered an all-time low against the dollar for the fourth straight trading day, closing at ₱58.50, a centavo away from the previous record of ₱58.49 set a day ago.

On Thursday, the US Fed increased rates by 75 basis points or three-quarters of a percentage point for the third time. Hours later, the BSP announced another 50-bp or half-point policy rate hike.

"When a country raises [its] interest rate, it creates attraction for their currency," Jonathan Ravelas, managing director of eManagement for Business and Marketing Services, told CNN Philippines over the phone.

"Kung nagtaas ang US, eh syempre lahat ng investments pupunta doon so nahahatak," he added.

[Translation: So if the US raises its interest rate, of course all investments will head there so our peso is dragged down.]

Meanwhile, from 6,301.71, the Philippine Stock Exchange index (PSEi) fell 0.67% to close at 6,259.54 on Friday. This marks its return to the 6,200 level since July 27, when it ended trading at 6,236.76 before climbing back to the 6,300 mark the next day.

"Market sentiment also partly weighed as other central banks around the world also raised key short-term interest rates, some of which have to contend with comfortable interest rate differentials with the US and also need to better manage both inflation and inflation expectations," RCBC chief economist Michael Ricafort said in an email to CNN Philippines.

For instance, the BSP has raised its policy rate by 225 bp since May compared to the Fed's cumulative 300-bp hike since March, Ricafort noted.

RELATED: BSP hikes borrowing rate to 4.25% with inflation seen above target until 2023 

BSP Deputy Governor Francisco Dakila Jr. said Thursday that the weakening of the peso, along with other currencies in the region, is "expected" as the dollar continues gaining ground over the Fed's policy tightening and other global risks. 

While some Filipinos with relatives working abroad think a stronger dollar is good news, economists warn that's not automatically the case.

After all, the Philippines heavily imports food and oil, which it pays for in dollars.

"The income that they send here, lumalaki 'yung value [the value goes up] but they're also offset by the higher costs that their families get here. Natatamaan din sila [They're also affected]," said Ravelas.

He also warned that a weaker peso, coupled with higher inflation that leads to more rate hikes, will lead to a "smaller bottomline" for companies.