Peso may weaken on BSP’s dovish tone
THE PESO may continue to depreciate versus the dollar this week on dovish hints from Bangko Sentral ng Pilipinas (BSP) officials ahead of its review and despite an aggressive rate hike by the US Federal Reserve.
The local unit closed at P53.75 per dollar on Friday, weaker by 28 centavos from its P53.47 finish on Thursday, based on Bankers Association of the Philippines data.
It also shed 75 centavos from its P53-per-dollar close a week earlier.
The peso opened Friday’s session at P53.47 versus the dollar. Its weakest showing was at its close of P53.76, while its intraday best was at P53.43 against the greenback.
Dollars exchanged declined to $962.5 million on Friday from $1.14 billion on Thursday.
The peso weakened as local stocks declined on Friday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail.
The Philippine Stock Exchange index fell by 61.45 points or 0.96% to close at 6,331.56 on Friday, while broader all shares went down by 40.29 points or 1.17% to 3,394.95. This was in line with the decline in US stock markets amid concerns over the economic impact of aggressive Fed rate hikes, Mr. Ricafort said.
The Fed hiked its benchmark interest rates by 75 basis points (bps) last week. The bigger hike came after US inflation hit a 40-year high in May.
For this week, signals from both the outgoing and incoming BSP chiefs that tightening would be gradual for the rest of the year is expected to give minimal support for the peso, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.
Outgoing BSP Governor Benjamin E. Diokno and his successor Monetary Board member Felipe M. Medalla last week said a 25-bp hike at their meeting on Thursday is almost a “sure thing.” Both made their comments ahead of the Fed’s decision.
Mr. Medalla said the BSP could raise rates more times this year but ruled out hikes bigger than 25 bps.
He said in a roundtable discussion with BusinessWorld editors last week that the BSP still has the “luxury of time and large reserves.”
“If the markets think we’re behind the curve, they will attack the peso,” he said. “Fortunately, the need to look more hawkish than we should be is not there. Right now, we’re trying to balance to ensure that we don’t miss our inflation targets next year, given the supply shocks.”
Analysts in a BusinessWorld poll were divided on the magnitude of the BSP’s move on Thursday, with nine expecting a 25-bp increase and six betting on a 50-bp hike.
They said they will watch out for guidance from the BSP on its policy path as the Fed and other central banks have become more hawkish in the face of rising inflation.
Oil price movements will also continue to affect the peso-dollar rate, both analysts said.
For this week, Mr. Ricafort gave a forecast range of P53.30 to P53.90 per dollar, while Mr. Asuncion expects a stronger P53.20-P52.70 band. — K.B. Ta-asan
