Peso extends rally as BSP turns cautious
THE PESO continued to rally versus the dollar on Wednesday amid bets that the Philippine central bank would cut rates gradually to keep a healthy differential with the US Federal Reserve.
The local unit closed at P57.515 per dollar on Wednesday, strengthening by 29.5 centavos from its P57.81 finish on Tuesday, Bankers Association of the Philippines data showed.
This was the peso’s best finish in more than two months or since its P57.465-a-dollar close on May 16.
The peso opened Wednesday’s session stronger at P57.70 against the dollar. Its intraday best was at P57.495, while its weakest showing was at P57.85 versus the greenback.
Dollars exchanged went up to $1.76 billion on Wednesday from $1.21 billion on Tuesday.
The peso strengthened further against the dollar as Finance Secretary Ralph G. Recto signaled that the Bangko Sentral ng Pilipinas (BSP) prefers to keep a healthy differential with the Fed, a trader said in a phone interview.
Mr. Recto, who is a member of the BSP’s policy-setting Monetary Board, said on Wednesday that he sees at least 50 basis points (bps) worth of local rate cuts this year, although this could be bigger if the Fed slashes borrowing costs more than expected.
Global stock markets plunged on Monday amid concern the US central bank has waited too long to begin cutting interest rates. Interest rate futures contracts at the day’s end reflected overwhelming bets that the Fed will start cutting borrowing costs next month with a bigger-than-usual 50-bp reduction to its policy rate, Reuters reported.
The Fed kept its benchmark interest rate unchanged in the current 5.25%-5.5% range last week and signaled it was on course to begin cutting rates in September, but that decision was followed by worrying signs the labor market might already have turned.
“The peso strengthened significantly after the upbeat Philippine labor reports released today,” a second trader said in an e-mail on Wednesday.
The Philippine jobless rate in June dropped to 3.1%, lower than the 4.1% recorded in May and 4.5% in the same month last year.
This was the lowest unemployment rate seen since April 2005.
For Thursday, both traders said peso-dollar trading will be driven by second-quarter Philippine gross domestic product data.
The first trader sees the peso moving between P57.20 and P57.70 per dollar, while the second trader expects it to range from P57.35 to P57.60. — A.M.C. Sy with Reuters