THE PESO could further strengthen against the US dollar this week, on optimism arising from the central bank’s dovish stance after it reduced both policy rates and lenders’ reserve requirement ratio (RRR).

The local currency ended the week at P51.875 against the greenback, 23.5 centavos stronger than the P52.11 close on Thursday.

Week-on-week, the local unit improved compared to the P51.96-per-dollar finish on Sept. 20.

Dollars traded widened to $1.21 billion on Friday, from Thursday’s $1.15 billion.

One trader said the peso’s performance was in line with the strength of other Asian currencies against the dollar.

“It’s favoring the peso right now. We are veering away from a range of more or less of P51.90-52.30 as the peso is growing stronger,” he said.

Meanwhile, Rizal Commercial Banking Corp. chief economist Michael L. Ricafort pointed out several factors that helped drive the peso’s trajectory.

“The peso [was] stronger…a day after the BSP (Bangko Sentral ng Pilipinas) decision to cut its policy rates…which supports sentiment on the local financial markets, as lower local policy rates spur greater economic activities and faster GDP (gross domestic product) growth,” he said.

On Sept. 26, the BSP’s Monetary Board cut benchmark interest rates by 25 basis points for the third time this year, bringing the reverse repurchase rate to four percent, as well as overnight deposit and lending rates to 3.5% and 4.5%, respectively.

The next day, the BSP announced a 100-basis point reduction in RRR for universal and commercial banks to 15%, five percent for thrift and rural banks, and three percent for rural banks, respectively, to take effect “on the first day of the first reserve week of November…”

“The cut in reserve requirements is in line with the BSP’s broad financial sector reform agenda to promote a more efficient financial system by lowering financial intermediation costs,” the BSP said in a press statement.

For this week, Mr. Ricafort noted the “surprise” RRR cut would have a positive effect on the peso.

“The surprise one percentage point cut in RRR announced after trading would be a positive development in the local economy and financial markets…That should be positive for the peso as well, unless some of the additional peso liquidity find their way to the foreign exchange market,” he explained.

However, he also flagged some developments which could weaken the peso.

“…[T]he latest external factor that could offset the recent positive developments in the US-China trade negotiations is the plan by the White House to limit US portfolio flows to China, part of which could include limiting US investments in Chinese companies in US stock exchanges,” Mr. Ricafort said.

For this week, RCBC’s chief economist said the peso could trade at a range of P51.70-52.20.

Meanwhile, the trader believes that more positive headlines could push the peso into a stronger territory of P51.90-52.30 while negative developments could drive it to the P51.90-52.30 range. — Luz Wendy T. Noble