THE PESO weakened against the dollar on Thursday on expectations that the central bank will keep benchmark interest rates untouched at record lows.

The local currency went down by 0.7 centavo on Thursday to close at P48.045 against the greenback from the P48.038 finish logged on Wednesday, data from the Bankers Association of the Philippines showed.

The peso’s weakest showing for the day was at 48.049. It opened Thursday’s session at P48.04 versus the dollar and climbed to as high as P48.023 against the greenback.

Dollars that changed hands declined to $727.5 million on Thursday from $897.5 million the day before.

Week on week, the local unit still gained 2.5 centavos from its P48.07-per-dollar close on Feb 5. The market is closed on Friday, Feb 12 in observance of Chinese New Year.

“The peso was marginally weaker but generally little changed vs. the US dollar for most of the day amid market expectations that the local policy rate would be kept unchanged at the record low of 2% amid higher inflation recently, thereby effectively reducing the odds of further cuts and could even lead to a potential hike should there be second-round inflation effects,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said via Viber.

In a statement released after the market’s close, the Bangko Sentral ng Pilipinas (BSP) said its Monetary Board kept the key policy rate at 2% during its first policy meeting this year. The overnight lending and deposit rates were also left untouched at 2.5% and 1.5%, respectively.

This matched the expectations of 17 out of 18 analysts polled by BusinessWorld last week.

The BSP meanwhile raised its inflation forecast for this year to 4% from 3.2% on expectations that prices will remain elevated in the coming months. This will hit the higher end of the central bank’s 2-4% annual target.

A trader shared the same view, saying via email: “The peso weakened after Monetary Board Member [Felipe M.] Medalla  dismissed the possibility of any rate hike and some caution ahead of the BSP policy meeting.

Mr. Medalla said on Tuesday that a rate hike “is not in the picture” since the central bank still has enough room to maintain an accommodative stance.

Mr. Ricafort added that weak investment data also weighed on the peso.

Preliminary BSP data released late Wednesday showed net inflows of foreign direct investments fell by 16.5% year on year to $537 million in November amid the coronavirus pandemic.

This brought the 11-month total to $5.792 billion, down 10.8% from the $6.493 billion seen a year ago.

“Healthy downward correction/profit-taking at the local stock market today, by -1.3%, after rising for 5 straight days partly weighed on the peso, amid some slight declines in the US stock markets,” he said on Thursday. — B.M. Laforga

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