Peso touches P52:$1 before closing weaker
THE peso briefly returned to the P52:1 level on Thursday with expectations of more aggressive monetary policy action said to have provided a temporary boost.
The currency opened at P52.98 to the dollar and climbed to as high as P52.93 during the day before closing at P53.09, marginally down from Wednesday’s P53.08.
ING Bank Manila senior economist Joey Cuyegkeng said several developments accounted for the intraday gain: Market expectations of stronger Bangko Sentral ng Pilipinas (BSP) policy action and external positive developments, as well as relatively lower demand for the dollar at the start of every month.
“The recent strengthening and outperformance of PHP (Philippine peso) against other Asian currencies is due to market expectation that the central bank would take a more aggressive policy action to re-anchor inflation expectations and address one of a number of inflation drivers — the weak PHP,” he explained, noting that the market expects a 50-basis point rate hike to be announced next week.
The BSP’s policymaking Monetary Board, which ordered rate hikes in May and June to combat above-target inflation, has so far limited the increases to 25 bps each.
Last month, however, BSP Governor Nestor Espenilla Jr. said they were considering “strong follow-through monetary adjustment” during the Monetary Board’s August 9 meeting.
Cuyegkeng said investors’ risk appetite had “also improved on the back of favorable external developments that eases growth angst that the trade conflict between US and allies and US and China may inflict on global growth and Asian economies”.
He mentioned efforts to implement counter-cyclical policies in China, recent trade agreements between the US and the European Union and favorable progress with North American Free Trade Agreement negotiations.
Meanwhile, Land Bank of the Philippines market economist Guian Angelo Dumalagan said mixed signals were behind the peso’s dip at the end of Thursday.
“Market participants are pricing in a rate hike from the BSP this month while reacting to hints of possible rate increases by the US Federal Reserve in September and December,” he noted.
The peso, described as Asia’s worst-performing currency this year, first touched the P53:$1 level in June on concerns over the country’s widening current account deficit and the prospect of higher US interest rates.
Economic managers have raised their peso-dollar exchange rate assumptions to P50-53:$1 for 2018-2022 from P49-52 previously.
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