Peso may strengthen as market awaits Fed move
THE PESO may appreciate slightly versus the dollar this week as market players expect the US Federal Reserve to keep rates unchanged.
The local unit closed at P56.955 per dollar on Friday, gaining half a centavo from its P56.96 finish on Thursday, based on Bankers Association of the Philippines data.
However, week on week, it depreciated by 11.5 centavos from its P56.84 close on Oct. 20.
The peso opened Friday’s session at P56.95 against the dollar. Its weakest showing was at P56.98, while its intraday best was at P56.85 versus the greenback.
Dollars exchanged increased to $1.65 billion on Friday from $1.08 billion on Thursday.
The peso strengthened versus the dollar on Friday following hawkish signals from the Philippine central bank chief, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Last week, the Bangko Sentral ng Pilipinas (BSP) delivered an off-cycle 25-basis-point (bp) rate hike, raising its policy rate to 6.5%, the highest in 16 years or since 7.5% seen in May 2007.
Rates on the overnight deposit and lending facilities were also raised by 25 bps to 6% and 7%, respectively.
The BSP’s first policy adjustment in seven months brought cumulative rate increases since May 2022 to 450 bps.
The peso stayed below the P57-a-dollar level last week as the BSP hiked borrowing costs in an off-cycle meeting, Jeff Ng, head of Asia macro strategy of Sumitomo Mitsui Banking Corp., likewise said in a note.
“This is due to inflationary risks, from transport, power and wages. Another hike at the next scheduled meeting on Nov. 16 may still be in play,” Mr. Ng said.
BSP Governor Eli M. Remolona, Jr. earlier said further tightening may be considered at the Monetary Board’s meeting on Nov. 16.
The Monetary Board may also keep the current policy settings “tighter for longer” until inflation expectations are anchored, he said.
Headline inflation rose for a second straight month to 6.1% in September from 5.3% in August. This marked the 18th straight month that inflation exceeded the central bank’s 2-4% target.
Year to date, inflation averaged 6.6%.
For this week, Security Bank Corp. Chief Economist Robert Dan J. Roces said the peso may consolidate due to the non-trading days on Oct. 30, Nov. 1, and Nov. 2.
“The Fed decision could affect (the peso) if there are surprises, but the market has priced in a hold from the Fed,” Mr. Roces said.
The US Federal Reserve will hold a two-day policy meeting from Oct. 31 to Nov. 1. The Fed kept its policy rate unchanged at 5.25-5.5% at its meeting last month.
Meanwhile, Mr. Ricafort said the Fed could still hike policy rates by 25 bps this week, which could be mirrored by the BSP on Nov. 16 to maintain a healthy interest rate differential with the US central bank.
Manufacturing purchasing managers’ index data for October scheduled for release this week could affect the peso, he added.
For this week, Mr. Ricafort gave a forecast range of P56.68-P56.98, while Mr. Ng sees the peso moving within the P56.60-P57.10 range. For his part, Mr. Roces expects the local unit to move within P56.70-P56.90 per dollar. — Keisha B. Ta-asan
