THE PESO could depreciate this week on expectations of another rate hike by the US Federal Reserve despite slower consumer inflation in March and a pause in the Bangko Sentral ng Pilipinas’ (BSP) tightening cycle.

The local currency closed at P55.21 versus the greenback on Friday, climbing by five centavos from Thursday’s P55.26 finish, Bankers Association of the Philippines data showed.

However, week on week, the peso fell by 81 centavos from its P54.40 finish on April 5.

The peso opened Friday’s session at P55.22 per dollar. Its worst showing was at P55.27, while its intraday best was at P55.06 versus the greenback.

Dollars traded increased to $1.39 billion on Friday from the $1.198 billion recorded on Thursday.

The peso appreciated on Friday as mixed US data bolstered expectations of further Fed rate hikes, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

A slew of mixed economic data including retail sales, industrial production and consumer sentiment cemented expectations that the Fed will hike rates another 25 basis points (bps) at next month’s policy meeting, Reuters reported.

Those expectations were underscored by Atlanta Fed President Raphael Bostic, who said another 25-bp hike could allow the Fed to end its tightening cycle, even as Chicago Fed President Austan Goolsbee called for the central bank to be prudent.

The Fed raised borrowing costs by 25 bps at its March 21-22 meeting, bringing its target interest rate to a range between 4.75% and 5%.

Since March 2022, it has hiked rates by a total of 475 bps.

The US central bank’s next meeting is on May 2-3.

In a report on Thursday, the US Labor department said its producer price index (PPI) for final demand dropped 0.5% in March, the most since April 2020, after being unchanged in February.

In the 12 months through March, the PPI increased 2.7%. That was the smallest year-on-year rise since January 2021 and followed a 4.9% advance in February.

On Wednesday, the US Labor department reported that the US consumer price index (CPI) climbed 0.1% last month after advancing 0.4% in February.

In the 12 months through March, the CPI increased 5%, the smallest year-on-year gain since May 2021. The CPI rose 6% on a year-on-year basis in February.

Meanwhile, retail sales fell more than expected in March as consumers cut back on purchases of motor vehicles and other big-ticket items, signs that the economy was slowing at the end of the first quarter because of higher interest rates.

On the other hand, initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 239,000 for the week ended April 8.

For this week, the peso could weaken anew amid bets of another rate hike by the Fed and a pause by the BSP, Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report.

“The latest strong US labor data that upheld Fed rate hike expectations despite softer US March CPI, onshore trading adjustments after the long Lenten holidays, and risk of a premature BSP rate pause could sustain a trading range above P55 according to our traders,” Mr. Asuncion said.

The central bank may consider pausing its monetary tightening next month if April inflation does not accelerate, BSP Governor Felipe M. Medalla said last week.

He said a pause in interest rate increases was possible “if the April CPI is not higher than the March CPI” or if there is “zero or negative month-on-month inflation.”

The BSP last month hiked benchmark interest rates by 25 bps to help bring down elevated inflation.

This brought the yield on its overnight reverse repurchase facility or its key rate to 6.25%.

Since May 2022, the central bank raised borrowing costs by a total of 425 bps.

The Monetary Board’s next meeting is on May 18.

Philippine headline inflation slowed for a second consecutive month in March to 7.6% from 8.6% in February.

For the first quarter, inflation averaged 8.3%, well above the BSP’s 6% forecast and 2-4% target for the year.

Mr. Asuncion expects the peso to trade between P55 and P55.50 against the dollar, while Mr. Ricafort sees it moving from P54.90 to P55.40. — A.M.C. Sy with Reuters