Peso weakens ahead of July inflation report

THE PESO weakened further against the dollar on Tuesday ahead of the release of latest inflation data and tensions between the United States and China.

The local unit ended trading at P55.435 versus the greenback, shedding 12.5 centavos from its P55.31-to-a-dollar close on Monday, according to data from the website of the Bankers’ Association of the Philippines.

The peso opened the session at P55.30 against the dollar, which was also its strongest showing for the day. Its weakest was at P55.45 against the greenback.

Dollars traded decreased to $777.17 million on Tuesday from $1.05 billion on Monday.

The peso retreated versus the greenback ahead of the release of latest inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso exchange rate again weaker for the second straight day, still considered a healthy correction after the relatively sharp appreciation of the peso since last week, with the peso still among the strongest in nearly a month, amid some geopolitical risks related to US-China tensions over Taiwan as US House Speaker Nancy Pelosi is expected to visit Taiwan on Aug. 2, defying warnings on consequences in doing so by Chinese authorities that partly led to some shift towards the safest assets/investments such as US Treasuries/government bonds,” Mr. Ricafort added.

A BusinessWorld poll of 14 economists last week yielded a median estimate of 6.2% for July headline inflation, within the Bangko Sentral ng Pilipinas’ (BSP) forecast of 5.6% to 6.4% for the month.

If realized, this would be a tad faster than the 6.1% reading in June, which was already a near four-year high, as well as the 3.7% posted in July last year.

The Philippine Statistics Authority will release July inflation data on Aug. 5, Friday.

For Wednesday, Mr. Ricafort gave a forecast range of P55.30 to P55.50 per dollar.

PESO STABILIZING
BSP Governor Felipe M. Medalla on Tuesday said the peso’s decline against the dollar remains aligned with other Asian currencies amid the US Federal Reserve’s aggressive tightening, a widening trade gap amid improving domestic demand, and the uptick in global oil prices due to the ongoing Russia-Ukraine war.

He said the BSP Monetary Board’s off-cycle decision to raise benchmark rates by an all-time high 75 basis points (bps) on July 14 has helped the peso stabilize. Days ahead of that surprise move, the local unit had hit its record low of P56.45 a dollar in intraday trade, with its year-to-date depreciation reaching a high of 10.5% on July 12, when it closed at P56.37.

“When changes in the exchange rate are small and transitory, they hardly translate to inflation. However, if it’s large and in one direction, we have to compute what we call long-run elasticities,” Mr. Medalla said at a special membership meeting of the Financial Executives Institute of the Philippines in Makati City.

“We do care about exchange rate volatility… We also care a lot about the exchange rate when it is moving up too fast. It will disanchor inflationary expectations… If you’re going to allow that much depreciation, how can you believe our inflation targets?” Mr. Medalla said.

The BSP is expected to raise rates by another 25 bps or 50 bps at its next meeting on Aug. 18. The Monetary Board has raised benchmark rates by 125 bps so far this year. — KBT