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Peso weakens on BSP rate cut

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THE PESO weakened against the greenback on Thursday following an off-cycle rate cut from the central bank and amid a decline on Wall Street.

The local unit ended trading at P50.80 per dollar on Thursday, down 18 centavos from its P50.62 finish on Wednesday, according to data from the Bankers Association of the Philippines.

The peso opened the session at P50.73 per dollar. Its weakest showing was its close of P50.80 while its intraday best was at P50.65 against the greenback.

Dollars traded increased to $352.1 million from $248.6 million on Wednesday.

A trader attributed the peso’s drop to market expectations of a more aggressive rate cut, which happened later on Thursday.

“The peso weakened as market participants continued to anticipate deeper BSP (Bangko Sentral ng Pilipinas) policy rate cuts and further reduction in the local reserve requirement ratio,” the trader said in an e-mail.

BSP Governor Benjamin E. Diokno told reporters in a Viber message that the central bank has “cut [the] key policy rate by 50 bps (basis points).”

Following this, the overnight reverse repurchase now stands at 2.75% while overnight lending and deposit rates were reduced to 3.25% and 2.25%, respectively.

Mr. Diokno earlier said they are looking at a “deeper cut” to support the economy, with the coronavirus disease 2019 (COVID-19) being a “once-in-a-lifetime crisis.”

Another trader said the rate cut affected the peso’s close.

“If you cut interest rates, the tendency is the currency weakens,” the second trader said in a phone call.

This came as a “double whammy” as US stocks also weakened, the trader said.

“In the morning, the peso opened weaker as there was risk-off sentiment in Wall Street. There is a slight volatility that’s why the peso saw weakness,” the trader said.

This Friday, the first trader expects the peso to play around the P50.75 to P50.95 range, while the second trader gave a forecast band of P50.40 to P51. — LWTN





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