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Peso seen to strengthen on bets of policy easing

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THE PESO will likely strengthen against the dollar this week on bets of monetary policy easing by the US central bank.

The local currency closed Friday’s session at P51.13 versus the greenback, six centavos stronger than the P51.19-per-dollar finish on Thursday, on the back of lingering expectations of a rate cut by the US Federal Reserve.

Week on week, the peso strengthened from the P51.195 finish on July 12.

“The peso could continue its sixth straight week of appreciation…amid weaker US dollar versus major global currencies due to possible Fed rate cut as early as the next FOMC (Federal Open Market Committee) meeting later this month,” Rizal Commercial Banking Corp. economist Michael L. Ricafort said in a text message yesterday.

On Wednesday, Fed chair Jerome Powell hinted of a cut in benchmark rates in a prepared speech to the House Financial Services Committee.

He said the central bank will “act as appropriate” to sustain expansion as “crosscurrents” such as trade tensions and concern on global growth are weighing on the economy.

Mr. Powell’s testimony strengthens the case of a rate cut from the Fed when FOMC meets again later this month. According to the minutes of FOMC’s June 18-19 meeting, several Fed officials said a near-term rate cut was warranted to quell the effects of possible economic headwinds.

“The dollar might continue to depreciate this week, as dovish expectations on US monetary policy might further be bolstered by potentially weak US economic reports on retail sales and industrial production,” a market analyst said in an e-mail on Sunday.

On Friday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the Fed has two options: to either cut rates by 25 basis points (bp) or by 50 bps. However, he noted that the probability of half-a-percentage point cut is “low.”

“That (gives) out, to me (and) the entire world more policy space for cutting,” Mr. Diokno said.

The BSP chief last week said the local central bank will likely to cut policy rates in the second half before moving to reduce banks’ reserve requirement ratios anew.

“Possible easing of local monetary policy amid easing inflation and possible Fed rate cut has also supported recent gains in the local financial markets, including the peso,” Mr. Ricafort said.

For this week, the market analyst expects the peso to trade between P50.70 and P51.30 versus the dollar, while Mr. Ricafort gave a P51.90-P51.30 forecast range. — K.A.N. Vidal





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