Peso weakens against dollar as market awaits August inflation report

The peso inched down against the dollar on Monday as the market awaited the release of the August consumer price index report on Tuesday.

The local currency closed at PHP 56.62 versus the dollar on Monday, weakening by 2.50 centavos from Thursday’s PHP 56.595 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Monday’s session weaker at PHP 56.65 per dollar. Its intraday best was at PHP 56.49, while its worst showing was at PHP 56.66 against the greenback.

Dollars traded went up to USD 1.59 billion on Monday from the USD 1.48 billion on Thursday.

The peso weakened ahead of the release of August inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“[On Tuesday], we’ll get domestic inflation, which could hint at the BSP’s (Bangko Sentral ng Pilipinas) own policy path,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

A BusinessWorld poll of 18 analysts yielded a median estimate of 4.9% for August inflation, near the lower end of the central bank’s 4.8-5.6% forecast for the month.

If realized, this would be faster than the 4.7% in July, but lower than the 6.3% print in August 2022.

It would also mark the 17^th straight month that inflation exceeded the central bank’s 2-4% target.

The BSP last month kept benchmark interest rates steady for a third straight meeting, but signaled it is prepared to resume tightening if needed amid risks to inflation.

The Monetary Board left its overnight reverse repurchase rate unchanged at a near 16-year high of 6.25%. Interest rates on the overnight deposit and lending facilities were maintained at 5.75% and 6.75%, respectively.

The BSP has raised borrowing costs by 425 basis points (bps) from May 2022 to March 2023 to help bring down elevated inflation.

The Monetary Board will hold its next policy meeting on Sept. 21.

“We did note some inflows, possibly from remittances, over the long weekend helping offset anxiety over the outlook for the Fed policy stance,” Mr. Mapa added.

The US Federal Reserve raised interest rates by 25 bps in July, bringing its benchmark overnight rate to a range between 5.25% and 5.5%.

It has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will next meet on Sept. 19-20 to review policy.

The market expects the Fed to keep rates steady and possibly end its tightening cycle this month following soft economic data.

For Tuesday, Mr. Ricafort sees the peso trading from PHP 56.50 to PHP 56.70 against the dollar. — AMCS