Generally, increased uncertainty in financial markets makes it harder for lenders to screen good credit risks from bad and ultimately makes information more asymmetric, thereby possibly exacerbating the adverse selection problem. Consequently, lenders may become less willing to lend, and that reluctance may lead to a decline in investment and aggregate activity.
On a year-to-date basis, the peso depreciated against the US dollar by 12.3 percent as it closed at $ on 15 September 2008. This is on account of rising risk aversion due to worries over global economic slowdown and credit tightening. Concerns over rising inflation further added pressure against the peso.