Peso up on hawkish BSP stance

THE PESO appreciated against the dollar on Thursday after the Bangko Sentral ng Pilipinas (BSP) said it would keep borrowing costs elevated next year.

The local unit closed at PHP 55.57 per dollar on Thursday, strengthening by 18 centavos from P55.75 on Wednesday, based on Bankers Association of the Philippines data.

The peso opened the session at PHP 55.78 against the dollar. Its intraday best was at PHP 55.57, while its weakest showing was at PHP 55.785 versus the greenback.

Dollars exchanged fell to USD 841.25 million on Thursday from USD 1.59 billion on Wednesday.

“The peso appreciated amid hawkish remarks from the BSP that local policy rates will remain elevated until inflation approaches near the 3% level,” a trader said in an e-mail.

BSP Governor Eli M. Remolona, Jr. told reporters on Wednesday that the Monetary Board was not likely to cut rates in the next few months unless inflation settles at 3%.

“We’re unlikely to cut rates in the next few months. We’re in a higher for longer [scenario]. When I say hawkish, that basically means high for a while,” Mr. Remolona said.

“If most of the numbers point in the right direction, including expectations, if they really settle into this comfortable range of 3% for inflation, then we would consider cutting rates,” he added.

The BSP has raised its policy rate by a cumulative 450 basis points to a 16-year high of 6.5% since May 2022.

Meanwhile, headline inflation slowed to 4.1% in November from 4.9% in October, marking the 20^th straight month that inflation breached the BSP’s 2-4% target. Year to date, inflation averaged 6.2%. 

The peso was also supported by “strong US housing and consumer confidence data” amid the seasonal increase of remittances, Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

The Conference Board’s consumer confidence index increased to 110.7 this month, the highest reading since July, from a downwardly revised 101.0 in November. Economists polled by Reuters had forecast the index would rise to 104.0 from the previously reported 102.0. The increase in confidence was largest among households in the 35-54 age group and with annual incomes of USD 125,000 and above. 

Meanwhile, US single-family homebuilding surged to more than a 1-1/2-year high in November and could gain further momentum, with declining mortgage rates and incentives from builders likely to draw potential buyers back into the housing market, Reuters reported.

Single-family housing starts, which account for the bulk of homebuilding, jumped 18% to a seasonally adjusted annual rate of 1.143 million units last month, the Commerce Department’s Census Bureau said. That was the highest level since April 2022.

For Friday, the trader said the peso could strengthen further against the dollar ahead of a likely softer US inflation report.

The trader expects the peso to move between PHP 55.40 and PHP 55.65 per dollar on Friday, while Mr. Roces sees it ranging from PHP 55.50 to PHP 55.80. — Aaron Michael C. Sy with Reuters