Peso climbs to new two-month high on hawkish BSP bets
THE PESO strengthened to a fresh two-month high against the dollar on Tuesday as faster-than-expected July inflation tempered expectations of a rate cut by the Bangko Sentral ng Pilipinas (BSP) next week.
The local unit closed at P57.81 per dollar on Tuesday, rising by nine centavos from its P57.90 finish on Monday, Bankers Association of the Philippines data showed.
This was the peso’s strongest finish since its P57.62-per-dollar close on May 17.
The peso opened Tuesday’s session weaker at P57.96 against the dollar. Its intraday best was at P57.80, while its weakest showing was at P58.02 versus the greenback.
Dollars exchanged went down to $1.21 billion on Tuesday from $1.76 billion on Monday.
The peso was initially weaker on safe-haven demand for the dollar due to recession fears in the US but rebounded in the afternoon as faster Philippine July inflation” [fanned] bets that the BSP may hold rates steady versus the Federal Reserve’s more aggressive tone, the first trader said by phone.
“The peso gained after hawkish remarks from BSP Governor Eli M. Remolona, Jr. that the central bank might consider holding its policy rates steady in its meeting next week,” the second trader said in an e-mail.
Mr. Remolona on Tuesday said a rate cut at its Aug. 15 review is “a little bit less likely” following the “worse-than-expected” July inflation print.
Headline inflation accelerated to a nine-month high of 4.4% in July from 3.7% in June. This was slower than the 4.7% print in the same month a year ago and was within the BSP’s 4%-4.8% forecast for the month.
However, this was higher than the 4% median estimate in a BusinessWorld poll of 15 analysts and was the fastest in nine months or since the 4.9% clip in October 2023.
The July consumer price index marked the first time since November that headline inflation exceeded the central bank’s 2-4% annual target.
The BSP chief previously signaled that they were on track to cut rates for the first time in over three years this month, possibly by 25 basis points (bps), adding that another 25-bp cut is likely next quarter.
The Monetary Board in July kept its policy rate at a 17-year high of 6.5% for a sixth straight meeting. It raised borrowing costs by a cumulative 450 bps from May 2022 to October 2023 to help tame elevated inflation.
For Wednesday, the second trader said the peso could weaken ahead of a potentially higher Philippine unemployment rate.
The first trader sees the peso moving between P57.50 and P58 per dollar, while the second trader sees it ranging from P57.65 to P57.90. — A.M.C. Sy