Peso climbs ahead of BSP decision

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THE PESO strengthened against the dollar on Thursday in anticipation of the Bangko Sentral ng Pilipinas’ (BSP) tightening move.

The peso ended the session at P51.80 versus the greenback, 21.5 centavos stronger than the P52.015 finish on Wednesday.

The peso opened the session slightly stronger at P52, which was also its worst showing for the day. Meanwhile, it soared to a high of P51.75-per-dollar intraday.

Dollars traded rose to $807.4 million yesterday from Wednesday’s $733.9 million.

Traders said the market was looking forward to an interest rate hike from BSP, which boosted the peso against the dollar.

The BSP’s policy-setting Monetary Board hiked key rates by 25 basis points amid accelerating inflation and robust economic growth.

The Monetary Board raised policy settings by 25 basis points during their third review for the year. Rates now stand at 3.75% for the overnight lending rate, 3.25% for the overnight reverse repurchase rate, and 2.75% for the overnight deposit rate.

“In deciding to raise the policy interest rate, the Monetary Board noted that latest forecasts have further shifted higher, indicating that inflation pressures could become more broad-based over the policy horizon,” BSP Governor Nestor A. Espenilla, Jr. said at yesterday’s briefing.

The BSP last hiked policy rates in September 2014 when inflation was trending above their 3-5% target that year.

The central bank’s decision fulfilled mounting calls for a rate hike. Last week’s BusinessWorld poll showed that nine of 11 economists have priced in higher rates during this week’s meeting.

The central bank also raised its inflation forecast to 4.6% in 2018 from 3.9% previously and 3.4% in 2019 from 3% before.

“The market was really anticipating for a hike, which brought the peso to end stronger,” a trader said.

The trader also noted that the rate increase, along with “other domestic factors,” will provide push for the peso to strengthen in the short-term.

“There’s a strong chance [that the peso will strengthen in the short-term], although there are other factors to consider as well. But if you look at the other domestic factors, there is a chance for the peso to continue to improve a bit for now.”

However, Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said the rate hike will not have much effect on the exchange rate.

“Nothing really, it’s more of perception,” Mr. Asuncion said in a text message. “The peso is expected to weaken with the influx of imports due to mainly to the investment-led push by the current government.”

Meanwhile, the trader said market anticipation for a rate hike affected the currency more than the first-quarter economic growth print.

The Philippine economy expanded by 6.8% in the first quarter, faster than the revised 6.5% growth posted in the same period last year, but below the 7-8% target band set by the government.

The first-quarter print also matched the 6.8% median estimate among 10 economists surveyed by BusinessWorld last week.

“The [gross domestic product] figure was just in line with what the market expected so that’s priced in already,” the trader said.

For today, the trader sees the peso moving between P51.70 and P52 against the dollar, while Mr. Asuncion gave a P51.90-P52.30 forecast range. — Karl Angelo N. Vidal