Peso weakens vs dollar as central bank sees faster 2022, 2023 inflation
THE PESO retreated versus the greenback on Thursday as the central bank warned of higher inflation this year and amid fresh signals from the US Federal Reserve.
The local unit closed at P51.33 per dollar on Thursday, depreciating by 4.5 centavos from its P51.285 finish on Wednesday, based on Bankers Association of the Philippines data.
The peso opened Thursday’s session at P51.27 against the dollar. Its weakest showing was at P51.36, while its intraday best was at P51.235 versus the greenback.
Dollars exchanged climbed to $824.4 million on Thursday from $596.1 million on Wednesday.
The peso weakened after the central bank said it now expects faster inflation for 2022 and 2023, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
The Bangko Sentral ng Pilipinas (BSP) kept benchmark interest rates steady at its meeting on Thursday to continue supporting the economy’s recovery, but signaled it is preparing an exit strategy to respond to inflation risks.
The BSP now expects a faster inflation rate of 3.7% for 2022 from its previous 3.4% estimate, still within the 2-4% target and slower than the 4.5% in 2021. The forecast for 2023 was likewise raised to 3.3% from 3.2% in the previous review.
“The higher inflation path in 2022 is attributed primarily to higher world non-oil prices, as well as global crude oil prices, that could affect domestic inflation,” BSP Department of Economic Research Managing Director Zeno Ronald R. Abenoja said.
Meanwhile, a trader in an e-mail said the market also factored in statements from the Fed on its planned rate hikes in the minutes of its latest meeting.
Fed officials last month agreed that, with inflation tightening its grip on the economy and employment strong, it was time to raise interest rates, but also that any decisions would depend on a meeting-by-meeting analysis of inflation and other data, according to the minutes of the Jan. 25-26 policy meeting, Reuters reported.
The account of the two-day session showed the US central bank readying for a fight against the fastest pace of price increases since the 1980s, with officials saying that while they still expected inflation to ease through the year, they would be ready to hike rates fast if it does not.
“Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the (Federal Open Market) Committee to remove policy accommodation at a faster pace than they currently anticipate,” the minutes stated.
As it stood, Fed officials said the strength of the economy and the high current pace of inflation would warrant raising rates quicker than the once-per-quarter pace seen during the tightening cycle that began in 2015 — a statement some analysts said perhaps points to rate hikes at every meeting this year.
For Friday, Mr. Ricafort gave a forecast range of P51.20 to P51.35 per dollar, while the trader expects the local unit to move within P51.25 to P51.50. — LWTN with Reuters
