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Peso ends higher ahead of inflation, BSP

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THE PESO ended stronger against the dollar on Monday as the market expects a strong inflation reading and a possible rate cut from the central bank on Wednesday.

The local unit ended trading at P50.80 versus the greenback, appreciating by three centavos from its P50.83-to-a-dollar close on Friday, according to data from the website of the Bankers’ Association of the Philippines.

The local currency opened at P50.95 against the greenback. Its weakest was at P51.05 while its strongest showing was at its close of P50.80 against the dollar.

Dollars traded rose to $1.073 billion from $956.8 million on Jan. 31.

A trader attributed the local currency’s strength to market expectations of “stronger inflation” for the previous month.

“The peso appreciated today as market players anticipated the release of stronger Philippine inflation report for January 2020 due to be released on Wednesday,” a trader said in an e-mail.

A BusinessWorld poll of 13 analysts yielded a median estimate of 2.7% for January inflation mainly due to uptick in food prices and some supply side shocks from the eruption of the Taal Volcano.

If realized, the estimate will fall close to the lower end of the 2.5% to 3.3% estimate range given by the BSP last week.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said that Monday’s trading shows the peso’s “resiliency amid market scares due to the coronavirus.”

“The peso is showing some resilience despite the colossal rout in markets all day as China markets opened since the coronavirus outbreak,” Mr. Asuncion said.

Reuters reported that the Shanghai Composite index fell by nearly 8%, its biggest daily decline in more than four years. With market fears about the spread of the coronavirus and its impact, $393 billion from the benchmark stock index was lost on Monday.

Deaths in China due to the virus have risen to 361 as of Sunday from the 17 on Jan. 23, the previous trading day before the Lunar New Year holidays.

Meanwhile, the offshore yuan began trade at its weakest for 2019 and was down by 1.2% by afternoon, going below the seven-per-dollar level to 7.0155.

“Market is [also] largely expecting a rate cut from the BSP (Bangko Sentral ng Pilipinas) this week as the potential easing may just be a much needed sigh of relief as most markets were negative,” Mr. Asuncion added.

BusinessWorld’s poll showed 10 out of 13 economists were of the view that the Monetary Board (MB) will opt to cut rates on its first policy meeting for the year this Feb. 6.

BSP Governor Benjamin E. Diokno has said they are still looking to cut rates by 50 basis points (bps) in 2020, with a 25-bp reduction possible as early as Feb. 6.

Key policy rates currently stand at four percent for the central bank’s overnight reverse repurchase facility, while overnight deposit and lending rates are at 3.5% and 4.5%, respectively.

For today, the trader gave a forecast range of P50.70-50.90, while Mr. Asuncion expects the local unit to play around the P50.70-50.90 levels. — L.W.T. Noble with Reuters

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