Peso declines on hawkish BSP signals

The peso depreciated against the dollar on Thursday after hawkish signals from the Bangko Sentral ng Pilipinas (BSP).

The local currency closed at PHP 56.855 versus the dollar on Thursday, weakening by 4.50 centavos from Wednesday’s PHP 56.81 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Thursday’s session weaker at PHP 56.90 per dollar. Its intraday best was at PHP 56.82, while its worst showing was at PHP 56.95 against the greenback.

Dollars traded went down to USD 815.28 million on Thursday from the USD 835.5 million on Wednesday.

The peso inched down on Thursday after the BSP hinted at a potential rate hike at its November meeting and raised its inflation forecasts for this year and the next, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Eli M. Remolona, Jr. said after their policy meeting on Thursday that a rate increase will be “on the table” in the Monetary Board’s Nov. 16 review, with the magnitude of the hike to be based on data.

The Monetary Board on Thursday kept its policy rate at 6.25% for a fourth straight meeting, as expected by 14 economists in a BusinessWorld poll last week.

Interest rates on the overnight deposit and lending facilities were also left unchanged at 5.75% and 6.75%, respectively.

The BSP has raised borrowing costs by 425 basis points from May 2022 to March 2023 to tame inflation.

On Thursday, the central bank raised its average inflation forecast for 2023 to 5.8% from 5.6% previously, and to 3.5% from 3.3% for 2024.

Meanwhile, the BSP kept its 2025 inflation forecast unchanged at 3.4%.

Headline inflation rose for the first time in seven months to 5.3% in August from 4.7% in July. Year to date, inflation averaged 6.6%, well above the BSP’s 2-4% target.

The peso was also dragged down by the US dollar reaching a six-month high, Mr. Ricafort added.

The dollar hit a 6-1/2-month high on Thursday after the US Federal Reserve signaled policy would remain restrictive for longer, even after holding rates steady, Reuters reported.

The dollar index, which measures the currency against a basket of rivals, rose as high as 105.68, its strongest since early March, before settling slightly lower at 105.45.

The Fed met market expectations at its monetary policy meeting on Wednesday, holding interest rates steady at the 5.25%-5.5% range.

The US central bank, however, stiffened a hawkish monetary policy stance that its officials increasingly believe can succeed in lowering inflation without wrecking the economy or leading to large job losses.

For Friday, Mr. Ricafort sees the peso ranging from PHP 56.75 to PHP 56.95 per dollar. — AMCS with Reuters