Peso may rebound vs dollar as BSP turns hawkish


THE PESO may rebound versus the dollar this week on hawkish remarks from the Bangko Sentral ng Pilipinas (BSP) chief following the surprise rate increase on Thursday.

The local unit closed at P56.36 per dollar on Friday, depreciating 21 centavos from its P56.15 finish on Thursday, based on Bankers Association of the Philippines data.

The peso also declined by 44 centavos from its P55.92-a-dollar finish a week earlier.

Year to date, it has weakened by 10.5% or by P5.36 from its close of P51 versus the dollar on Dec. 31, 2021.

The local currency opened Friday’s session at P56.35 against the dollar. Its weakest showing was at P56.44, while its intraday best was at P56.315 versus the greenback.

Dollars exchanged declined to $ 678.3 million on Friday from $ 1.65 billion on Thursday.

The peso weakened against the dollar on Friday following hawkish signals from the US Federal Reserve after US inflation hit a fresh 40-year high, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a Viber message.

US consumer prices jumped by 9.1% annually in June, the fastest in more than 40 years, data released on Wednesday showed. This fueled bets of an even bigger hike by the Fed at its July 27-28 review following the 75-basis-point (bp) increase made in June.

For this week, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the peso may be supported by the BSP’s hawkish turn.

RCBC’s Mr. Ricafort likewise said the BSP’s move “is meant to support or at least stabilize the peso exchange rate, as part of the toolkit related to the exchange rate vis-a-vis the inflation-targeting framework since 2001 and the price stability mandate.”

The BSP raised its benchmark interest rates by an all-time high 75 bps in an off-cycle move on Thursday and left the door open for further tightening amid growing risks to inflation.

BSP Governor Felipe M. Medalla said the Monetary Board’s “significant” hike was due to signs of “sustained and broadening price pressures” as well as spillover effects from aggressive tightening in other countries, such as the United States, amid global inflation concerns.

The move came ahead of the Monetary Board’s Aug. 18 review and follows the back-to-back 25-bp hikes done in May and June, bringing total increases for the year to 125 bps.

On Friday, Mr. Medalla said in an interview with Bloomberg Television that he would not rule out another interest rate increase in the August review, although the need for a 50-bp hike at that meeting is “much less now” following the 75-bp increase on Thursday.

Headline inflation rose by 6.1% year on year in June, the fastest in nearly four years and exceeding the central bank’s 2-4% target band for a third straight month. The average inflation rate in the first six months is 4.4%, still below the BSP’s full-year forecast of 5%.

For this week, Mr. Ricafort gave a forecast range of P56 to P56.45, while Mr. Asuncion expects the local unit to move within P55.80 to P56.50 per dollar. – Keisha B. Ta-asan

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