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Peso to rise on rate cut

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THE PESO is seen to continue appreciating against the greenback as the surprise rate cut last week is expected to support market sentiment.

The local unit ended trading at P49.92 versus the dollar on Friday, stronger by eight centavos from its P50.00 finish on Thursday, data from the Bankers Association of the Philippines showed. The peso also appreciated by 14 centavos from its P50.06 close on June 19.

Analysts said the surprise rate cut by the Bangko Sentral ng Pilipinas (BSP) on Thursday is positive for the peso.

“[T]he impact has spilled over to the peso last Friday, fueling the currency’s strength,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a text message.

In a surprise move, the Monetary Board slashed rates by another 50 basis points (bps) on Thursday. With this, rates on the BSP’s reverse repurchase, lending and deposit facilities were reduced to record lows of 2.25%, 2.75, and 1.75% effective Friday, June 26.

The BSP has slashed rates by 175 bps this year in a bid to cushion the impact of the coronavirus pandemic on the economy.

Aside from the rate cut, recent data from the US showing signs of gradual economic improvement also supported the peso, said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp.

“Improvements in some US economic data such as jobless claims and durable goods orders also supported improved sentiment and reduced safe haven demand,” he said in a text message.

The US Labor department reported initial claims for state unemployment benefits dropped 60,000 to a seasonally adjusted 1.48 million for the week ended June 20, according to Reuters.

The report showed that claims have been decreasing compared to the record 6.867 million in late March but are still at levels more than double their peak during the 2007-2009 Great Recession.

Meanwhile, data from the US Commerce department showed orders for durable goods meant to last for three years or more jumped by 15.8% in May after dropping by 18.1% in April. The trend was seen to be in line with improvements in regional manufacturing.

For this week, the rate cut will continue to affect foreign exchange trading, Mr. Asuncion said.

“The peso is expected to continue its strength as the surprise 50 bps cut continues to work its way through the market,” he said.

Meanwhile, Mr. Ricafort said updates on the coronavirus disease 2019 (COVID-19) will also affect the risk appetite of investors.

“Major leads for this week include the trend in new COVID-19 cases locally and in some countries especially in the US and the decision by Malacañang on whether or not to further ease the GCQ (general community quarantine) in Metro Manila and in other areas that would lead to further reopening of the economy,” he said.

Mr. Asuncion gave a forecast range of P49.60 to P49.90 while Mr. Ricafort sees the peso to move around the P49.75 to P50.15 level. — L.W.T. Noble with Reuters





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