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Peso weakens ahead of RRR cut

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THE PESO declined against the dollar to hit a fresh one-month low as market players awaited the central bank’s decision to trim lenders’ reserve requirement ratio (RRR).

The local unit closed Thursday’s session at P52.48 against the greenback, 13 centavos weaker than the P52.35-per-dollar finish on Wednesday.

This was the peso’s worst finish in more than a month or since it closed at P52.44 versus the dollar last April 2.

The peso traded weaker the whole day, opening the session at its best showing of P52.36 per dollar. Intraday, it slid to as low as P52.485 against the US currency.

Dollars traded thinned to $715.27 million from the $847.3 million that switched hands the previous day.

Foreign exchange traders said the peso weakened against the dollar on Thursday in anticipation of a cut in banks’ RRR.




“The peso moved weaker today, although the announcement came in after the close. It weakened on the expectation of a BSP (Bangko Sentral ng Pilipinas) cut, which was already announced,” a trader said in a phone interview.

The BSP decided to slash big banks’ reserve ratio by a total of 200 basis points to 16% from the current 18%, with the cut to be implemented in three stages.

The central bank will trim the RRR by a percentage point on May 31. Meanwhile, the reserve ratio will be slashed by another 50 basis points on June 28 and then on July 26.

Currently, universal and commercial banks are required to keep at least 18% of their deposits with the BSP — a share considered to be among the highest in the region. Trimming the RRR by a percentage point is expected to unleash about P90-100 billion into the financial system.

“If you cut reserves, it will free up around P100 billion in liquidity, which would effectively help bring down peso interest rate. More supply means less interest in the market,” the trader said.

Another trader said the peso opened the session at its best showing as banks took profits ahead of the BSP’s announcement.

“The market was expecting this to happen, so banks were somehow buying throughout the day.”

Meanwhile, a third trader attributed the peso’s weakness to the renewed safe-have demand towards the greenback after US President Donald J. Trump issued an executive order to the US Department of Commerce to block US companies from buying telecommunications equipment deemed as a security risk, a move seen to blacklist Chinese technology firm Huawei.

For today, the first two traders expect the peso to move between P52.30 and P52.70 versus the dollar, while the third gave a P52.35-P52.65 range.

Meanwhile, emerging Asian currencies were mixed on the day as United States and China aim to salvage trade talks that could end their protracted trade dispute.

The yuan was largely steady. Traders said the news that the US has hit telecoms giant Huawei with severe sanctions did not move the currency. — K.A.N. Vidal with Reuters

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