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Peso drops as inflation picks up in June

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PHILSTAR/KRIZ-JOHN ROSALES

THE PESO depreciated against the dollar on Thursday as headline inflation for the month of June accelerated to a fresh five-year high.

The local currency closed on Thursday at P53.42 against the dollar versus the greenback, six centavos weaker from its P53.36-per-dollar finish the previous day.

The peso immediately weakened Thursday, July 5, opening the session at P53.41 against the dollar. It slipped to a low of P53.44, while its best showing stood at P53.36 versus the US currency.

Dollars traded slid to $520.5 million from the $587.1 million tallied the previous day.

“The peso depreciated as higher-than-expected local inflation data for June shook the markets which drove investors toward the greenback,” a trader said in an e-mail.

The government reported early Thursday that Philippine inflation accelerated to a fresh five-year high of 5.2% in June.

Last month’s inflation print surged from May’s 4.6% figure and was faster than the 4.7% median forecast among economists in a BusinessWorld poll.

The latest figure also exceeded the 4.3-5.1% estimate range by the Bangko Sentral ng Pilipinas (BSP) and the 4.9% estimate of the Department of Finance.

Price increases in June was led by alcohol and tobacco (20.8%), transport (7.1%) as well as food (6.1%).

“Given the higher-than-expected inflation print, there might be a chance for another rate hike soon and that is what we’re monitoring at this point,” another trader said in a phone interview.

BSP Governor Nestor A. Espenilla, Jr. said Thursday, July 5, that the inflation result “is a setback.”

“We will review and update our situational assessment and forecast inflation path,” Mr. Espenilla told reporters in a mobile phone message. “This will shape the strength and timing of our next monetary policy response to firmly anchor inflation expectations.”

“If inflation continues to persist, which is breaching the BSP target, then there might be a pressure for them to hike again,” the second trader said. “If they don’t, then we might see the peso weaken further.”

The second trader added the market is waiting for the minutes of the June policy meeting of the US Federal Reserve as well as the US unemployment data to be released later this week.

“The local currency is expected to weaken further [on Friday] amid expectations of hawkish cues from the minutes of the June 2018 Fed policy meeting, wherein a 25-basis point rate hike was effected by the US Federal Reserve,” the first trader said.

For Friday, the second trader expect the peso to move between P53.30 and P53.55, while the other gave a slightly slimmer P53.35-P53.55 range. — Karl Angelo N. Vidal