Weak Peso May Push Up Fuel, Power Costs

SINGAPORE – The peso sliding to record lows against the dollar could squeeze household budgets and threatens to push electricity bills and fuel prices even higher along with other imported goods.

Energy Secretary Sharon Garin, on the sidelines of the Singapore International Energy Week, warned on Tuesday, Oct. 27, that the weakening peso could drive up the cost of imported coal, diesel and liquefied natural gas.

This could put further upward pressure on domestic energy prices, particularly electricity rates, amid the ongoing global oil crisis and the looming El Niño threat.

The local currency breached the 64-per-dollar mark for the first time in intraday trading on Tuesday, extending its string of record lows.

The Department of Energy (DOE) is exploring possible measures to cushion the impact of the peso depreciation and continued market volatility.

Garin said she would meet with Energy Regulatory Commission chairman and CEO Francis Saturnino Juan to discuss possible regulations to prevent sudden spikes in electricity bills.

The weakening peso has already contributed to higher electricity rates this month in Metro Manila and nearby provinces, as some power supply contracts are dollar-denominated.

At the pumps, the DOE is considering the staggered implementation of price adjustments to help ease the burden on motorists.

“We’ll ask them (oil companies) again once we see the computations this week. Normally, they follow, but hopefully, it won’t be necessary anymore,” Garin said.

For this week, the DOE prescribed maximum price hikes of P1.20 per liter for diesel and P0.50 per liter for kerosene.

Gasoline prices, meanwhile, went down by at least P0.30 per liter.

Data from the Bankers Association of the Philippines showed the peso closed at a fresh record low of 64.17 per dollar on Tuesday, weaker by 22 centavos from Monday’s 63.95 finish.

It was the local currency’s fifth straight trading session at a new all-time closing low.

The peso opened at 63.95 and briefly strengthened to 63.90, its best level for the day, before weakening to as much as 64.20, its weakest intraday level on record. Trading volume increased by about 4.7 percent to $1.73 billion from $1.65 billion previously.

The peso first closed above the 63-per-dollar level on Oct. 15, meaning it took just 12 days for the currency to breach 64.

The weaker currency has already contributed to higher electricity rates in Metro Manila and nearby provinces this month because some power supply contracts are denominated in dollars.

Chinabank chief economist Domini Velasquez said the peso’s continued depreciation despite the Bangko Sentral ng Pilipinas’ surprise 50-basis-point rate hike last week reinforced concerns that monetary tightening by itself may not be sufficient to turn the currency around.

“Ultimately, the key question is how quickly the Philippine economy can recover amid heightened uncertainty,” Velasquez said.

Economic data could also complicate the outlook. Velasquez said inflation in October and November could approach eight percent, while third-quarter gross domestic product growth could slip below three percent.

BPI economist Jun Neri was somewhat less downbeat on growth, putting the upcoming GDP reading at “a little over three” percent. He nevertheless expects inflation to remain elevated, estimating the October rate at around 7.8 to 7.9 percent and saying November could rise above eight percent.

The combination of weak growth, high inflation and continued peso depreciation leaves policymakers facing a difficult balance. Higher interest rates may help contain inflation and support the currency, but they also raise borrowing costs at a time when economic growth is already under pressure. – With Keisha Ta-Asan