THE PESO SLID against the dollar on Wednesday following dovish remarks from Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
The local currency closed Wednesday’s session at P51.46 versus the greenback, down 15 centavos from its P51.31-per-dollar finish on Tuesday.
The peso opened the session weaker at P51.405 versus the greenback. It slipped to as low as P51.48 intraday, while its best showing stood at P51.36 against the US currency.
Dollars traded thinned to $729.69 million from the $761.92 million that switched hands the previous day.
A trader said yesterday that the peso depreciated against the dollar following Mr. Diokno’s comment of a possible cut in interest rates before any reduction to banks’ reserve requirement ratios (RRR).
“Palagay ko mauuna ‘yung interest rate cut bago mag-reserve requirement (I think an interest rate cut will precede a reserve requirement reduction),” Mr. Diokno told reporters on the sidelines of a BSP event yesterday.
The central bank reduced benchmark rates by 25 basis points (bp) on May 9 after tightening rates by 175 bps in 2018 to quell inflation. However, the BSP took a “prudent pause” at its June 20 meeting, keeping policy rates steady to observe the effects of previous adjustments, including its phased RRR cuts.
The BSP is set to end its phased reduction to banks’ reserves on July 26 to finally bring them to 16% for universal and commercial banks and 6% for thrift lenders.
“I think the market is just positioning for an event wherein a rate cut will come in the next Monetary Board meeting which is around early August,” the trader said in a phone interview.
The trader added that the decline of the local unit was capped as market participants awaited the testimony of Federal Reserve chair Jerome Powell before the US Congress for clues on monetary policy in the world’s largest economy.
“The peso weakened on sustained positioning ahead of US Federal Reserve Chairman Jerome Powell’s congressional testimony on monetary policy,” another trader said, adding that investors also positioned ahead of the release of minutes of the June 18-19 policy meeting of the Fed.
For today, the first trader expects the peso to trade between P51.40 and P51.60 versus the dollar, while the other gave a P51.35-P51.55 range.
Emerging Asian currencies made only small moves on Wednesday, as investors waited for the congressional testimony of Mr. Powell.
There was no common trend in Asian units, with both marginal losses and gains against the dollar which firmed on higher Treasury yields before Mr. Powell’s remarks later on Wednesday.
Strong US jobs data last week doused market hopes for a large rate cut at the July 30-31 Fed meeting, but a small cut is still widely expected. — Karl Angelo N. Vidal with Reuters