Peso to weaken ahead of BSP meeting

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THE PESO is seen to weaken against the dollar this week amid expectations of a cut in banks’ reserve requirements and mixed US data.

The local currency closed last Friday’s session at P52.65 versus the greenback, five centavos weaker from the previous close, due to a reported delay in the meeting between US President Donald J. Trump and his Chinese counterpart Xi Jinping.

Week on week, the peso also declined from its P52.25-per-dollar finish last March 8.

A market analyst said the peso may move sideways with a downward bias in the latter part of the week as “expectations of dovish remarks and actions from the BSP (Bangko Sentral ng Pilipinas) might offset similar cautious comments from the US Federal Reserve.”

A BusinessWorld poll of 13 economists showed some market watchers believe the central bank will cut the reserve requirement ratio of big banks by a percentage point from the current 18%, taking cue from the previous pronouncements of BSP Governor Benjamin E. Diokno.

“The BSP might reduce the reserve requirement ratio by 100 bps and hint of looser monetary policy settings ahead in response to easing inflation,” one market watcher said.

“Meanwhile, the US Federal Reserve is expected to affirm its “patient” stance on monetary policy and could signal a softer path of future interest rate normalization. The dovish tilt of US policy makers might temper the dollar’s gain from the BSP’s potential policy shift.”

The analyst however noted that the dollar may weaken today following the comments of Chinese Premier Li Keqiang saying the US and China can achieve a mutually beneficial trade deal.

The dollar is also expected to weaken as US reports on industrial production and manufacturing came out weaker than expected even as consumer sentiment improved.

Meanwhile, UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion expects the peso to weaken as local data on the current account deficit and trade balance weigh on the currency.

“This is actually why [UnionBank’s Economic Research Unit] is expecting P54.50 peso ending this year,” Mr. Asuncion added.

For this week, he expects the peso to move between P52.70 and P53.10, while the market analyst gave a P52.35-P52.95 range. — K.A.N. Vidal