Peso climbs as BSP stays dovish despite easing inflation

THE PESO strengthened versus the dollar on Friday, bolstered by dovish cues from the Bangko Sentral ng Pilipinas (BSP) despite a slower-than-expected March inflation print.

The local unit ended the week at P52.10 against the greenback, eight centavos stronger than Thursday’s P52.18 finish.

The peso initially traded weaker as it opened at P52.28, and even posted an intraday low of P52.33-per-dollar. However, the currency appreciated later in the session to touch P52.09 as its best showing before settling at the closing rate.

Two traders interviewed by phone attributed the peso’s rebound to comments made by central bank officials in response to latest inflation data.

March inflation clocked in at 3.3%, the slowest since January 2018 to mark the fifth straight month of a decline.

“The peso initially weakened because the CPI (consumer price index) was lower than expected. Initially, the thought is there will be a rhetoric about rate cuts but so far, there’s none. There are comments about being careful,” one trader said.

Following the release of latest inflation figures, BSP Governor Benjamin E. Diokno said the central bank needs to “continue to keep a close watch” on price developments given concerns draw from a more severe El Niño and possible rise in world crude prices.

BSP Deputy Governor Diwa C. Guinigundo added that the BSP “needs to be very careful” about setting policy rates, noting that they need to see a clear downtrend before any adjustments are made. In a Bloomberg report, Mr. Guinigundo said they will only consider cutting rates once inflation hovers around three percent, or the midpoint of the 2-4% target band.

A second trader noted that market players likely took the initially weaker peso as an “opportunity to sell” their currency holdings.

“Inflation was lower but still within target,” she added.

Dollars traded on Friday totalled $964.52 million, lower than the $1.175 billion which exchanged hands the previous day. — Melissa Luz T. Lopez