THE PESO closed sideways against the greenback on Tuesday following the reduction in the reserve requirement for smaller lenders and as investors await clarity on further fiscal support in the United States.

The local unit closed at P49.39 versus the dollar on Tuesday, depreciating by 1.50 centavos from its P49.375 finish on Monday, data from the Bankers Association of the Philippines showed.

The peso opened the session at P49.30 per dollar. Its weakest showing was at P49.40 while its strongest was at P49.27 versus the greenback.

Dollars exchanged totaled $676.25 million, an increase from the $492.33 million logged on Monday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the slightly weaker peso came on the back of the latest reserve requirement ratio (RRR) cut.

“The peso exchange rate corrected slightly versus the dollar after the surprise 100 bps (basis points) cut in the RRR of thrift and rural and cooperative banks that will effectively infuse P10- billion additional peso liquidity into the banking system,” Mr. Ricafort said in a text message.

The cut will bring down the RRR of thrift and rural banks to three percent and two percent, respectively.

The Bangko Sentral ng Pilipinas said the reduction is expected to boost smaller banks’ lending capacity to benefit small businesses and rural community-based clients.

This follows the 200-bp reduction in big banks’ RRR to 12% in April.

The Monetary Board has authorized up to 400 bps in reserve requirement ratio cuts for this year.

Meanwhile, a trader attributed the local unit’s decline to bargain hunting as investors await news on new fiscal stimulus measures in the US.

“The peso slightly depreciated on the close from bargain-hunting by market participants during intraday strength as investors look forward to additional US fiscal support being discussed by US President Donald J. Trump and Treasury Secretary Steven T. Mnuchin,” the trader said in an e-mail.

Reuters reported that Mr. Trump’s advisers, together with Democrats, are scheduled to discuss steps related to the national response to the virus on Tuesday. Meanwhile, Republicans are pushing for a $1-trillion relief bill. — LWTN with Reuters

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