Peso inches lower vs the dollar

THE PESO moved sideways against the dollar on Thursday after the central bank delivered an aggressive rate increase to rein in rising inflation. — BW FILE PHOTO

THE PESO moved sideways against the dollar on Thursday as the Bangko Sentral ng Pilipinas (BSP) delivered a widely expected 75-basis-point (bp) rate increase to fight inflation.

The local unit closed at P57.36 per dollar on Thursday, inching down by a centavo from its P57.35 finish on Wednesday, based on Bankers Association of the Philippines data.

The peso opened Thursday’s session weaker at P57.45 per dollar. Its worst showing was at P57.53, while its intraday best was at P57.35 against the greenback.

Dollars exchanged decreased to $661.88 million on Thursday from $1.02 billion on Wednesday.

The peso was little changed on Thursday following the BSP’s policy decision, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. 

The central bank on Thursday raised key interest rates for a sixth time this year to rein in rising inflation.

As expected, the Monetary Board increased the overnight reverse repurchase or policy rate by 75 bps to 5%. The rates on the overnight deposit and lending facilities were also increased to 4.5% and 5.5%, respectively.

With this, the central bank has now raised rates by a total of 300 bps so far since March.

Mr. Ricafort said the peso inched lower as the central bank gave higher inflation forecasts for this year and next amid strong upside risks to prices.

The BSP on Thursday raised its inflation outlook for 2022 to 5.8% from 5.4% previously, beyond its 2-4% target band. The central bank also hiked the 2023 projection to 4.3% from 4.1% and the 2024 forecast to 3.1% from 3% previously.

“The peso weakened slightly after the BSP Governor [Felipe M.] Medalla hinted at potentially softer rate hikes in future meetings,” a trader said in an e-mail.

Asked if the BSP will continue to match the Fed’s tightening in the coming months, Mr. Medalla said in a briefing that their future policy actions will be data-dependent.

“The Fed rate now is not the highest, but the four 75-bp (rate increases) have been the (fastest) for a long time and I think that’s over. Therefore, we are slowly going back to a more normal global interest rate environment,” he said. 

“We will probably do less of the, the two recent unusual actions the BSP did, namely the off-cycle 75 (bps) and this 75 (bp) that was announced two weeks earlier,” Mr. Medalla added.

Still, the peso remained stable after S&P Global Ratings affirmed the Philippines’ credit rating, Mr. Ricafort noted.

S&P maintained its “BBB+” rating on the Philippines and assigned a “stable” outlook on expectations of “healthy” growth.

For Friday, the trader said the peso may strengthen on a potentially strong euro zone inflation report.

The trader sees the peso moving between P57.20 and P57.45 on Friday, while Mr. Ricafort gave a slightly wider forecast range of P57.30 to P57.50 per dollar. — K.B. Ta-asan