THE PESO strengthened to a three-week high on Friday, buoyed by cues from the central bank that inflation is on its way down and that dollar reserves have recovered.
The peso ended the week at P52.07 against the dollar, shaving 17 centavos from Thursday’s P52.24 finish. This is the currency’s best showing since Jan. 15, when the peso closed at P52.03 versus the greenback.
The local unit opened stronger at P52.175 against the dollar, but briefly touched P52.24 as its intraday low. It climbed to P52.07 as its strongest showing and settled there upon the market’s close.
Two traders interviewed by phone attributed the stronger peso to signals from the BSP following its decision to keep interest rates steady on Thursday.
“Yesterday, the Monetary Board’s decision was within expectation. The stronger peso is because of the lower inflation forecast, as well as the higher gross international reserves (GIR),” one trader said.
The Bangko Sentral ng Pilipinas’ (BSP) Monetary Board voted to keep benchmark rates between the 4.25-5.25% range amid a “manageable” inflation environment, and with strong signs that inflation is indeed on a sustained decline.
BSP Assistant Governor Francisco G. Dakila, Jr. even said the monthly inflation rate will return to below four percent by March, while the full-year forecast now stands at 3.1% for 2019, down from 3.2% previously.
On the other hand, the central bank also reported that gross international reserves (GIR) reached $82.132 billion in January, picking up from the $79.193-billion level logged the previous month to log a 20-month high.
The second trader added that the peso was an “outlier” compared to other currencies in the region, thanks to the BSP’s signals.
“We appreciated today after the BSP meeting. Markets were expecting unchanged (stance) but a dovish statement. They were neutral,” the trader said on Friday. “The market was also expecting a cut in the reserve requirement within this quarter, but with the statements, it won’t be in the short term. The dollar-peso traded lower on that.”
BSP Deputy Governor Diwa C. Guinigundo said further cuts to bank reserves will be introduced only when actual year-to-date inflation readings and inflation expectations return to the 2-4% target band, and when the local market is experiencing real tightness in liquidity conditions.
Dollars traded on Friday stood elevated at $1.233 billion, only slightly lower than the $1.269 billion that exchanged hands the previous day.
The first trader noted that this may be due to some offshore flows entering the Philippines, while the other trader said that part of the trades represent the BSP buying dollars to beef up the GIR even more. — Melissa Luz T. Lopez

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