DESPITE the Bangko Sentral ng Pilipinas (BSP) delivering a rate increase on Thursday, the peso continued to weaken against the dollar after the US Federal Reserve’s hawkish signals to tame inflation.

The local unit closed at P55.888 per dollar on Thursday, shedding 2.80 centavos from its P55.86 finish on Wednesday, based on Bankers Association of the Philippines data.

The peso opened Thursday’s session at P55.85 per dollar. Its weakest showing was at P55.975, while its intraday best was at P55.755 against the greenback.

Dollars exchanged slightly increased to $939.3 million on Thursday from $918.65 million on Wednesday.

In a Viber message, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the peso depreciated after hawkish signals from the US Federal Reserve.

Minutes released on Wednesday from the Federal Reserve’s July 26-27 meeting, bank policy makers committed to raising rates as high as necessary to tame inflation.

Federal Reserve officials saw “little evidence” late last month that US inflation pressures were easing, even as they began to acknowledge more explicitly the risk if they might go too far and curb economic activity too much.

The headline inflation rate in the US slowed more than expected to 8.5% in July from an over 40-year high of 9.1% hit in June.

“The peso slightly weakened after the BSP increased its inflation outlook for 2022,” a trader said in an e-mail.

The BSP raised its key interest rate by 50 basis points (bps) on Thursday to cool stubborn inflation, which is now expected to quicken to 5.4% this year.

The central bank also raised its average inflation forecast for this year to 5.4%, from 5% previously, exceeding its 2-4% target band.

For 2023, the BSP’s inflation forecast was revised downward to 4% from 4.2% previously. Average inflation is expected to decline to 3.2% in 2024.

Inflation rose by 6.4% year on year in July, the fastest in nearly four years, and exceeded the central bank’s 2-4% target band for a fourth straight month.

“The local currency might appreciate as various Federal Reserve officials are highly expected to echo the relatively dovish signal from the latest policy meeting minutes released this week,” the trader added.

The pace of rate increases by the Fed could ease as soon as next month, with the minutes stating that, given the need for time to evaluate how tighter policy is affecting the economy.

At some point, the large 75-bp increases approved at the Fed’s June and July meetings may come to half-percentage-point and eventually quarter-percentage-point hikes in its next meetings this year, Reuters reported.

For Friday, the trader sees the peso moving between P55.80 and P56.00, while Mr. Ricafort gave a forecast range of P55.75 to P55.95 per dollar. — Keisha B. Ta-asan with Reuters