BSP decision to drive peso-dollar trading this week

The peso could move sideways against the dollar this week, with trading to be mostly driven by the Bangko Sentral ng Pilipinas’ (BSP) policy decision on Monday.

The local unit closed at PHP 56.50 per dollar on Friday, weakening by 14.5 centavos from its PHP 56.355 finish on Thursday, Bankers Association of the Philippines data showed.

This was the peso’s weakest close in more than two months or since its PHP 56.53-per-dollar finish on Jan. 25.

Week on week, the peso depreciated by 26 centavos from its PHP 56.24 close on March 27.

The peso slumped against the dollar on Friday after inflation picked up in March, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Headline inflation quickened for a second straight month in March to 3.7% year on year from 3.4% in February. Still, this was slower than the 7.6% clip in the same month last year.

The March consumer price index (CPI) was also slightly below the 3.8% median estimate in a BusinessWorld poll conducted last week but was within the BSP’s 3.4-4.2% forecast for the month. It also marked the fourth straight month that the CPI was within the central bank’s 2-4% annual target.

For the first quarter, headline inflation averaged 3.3%, below the BSP’s 3.6% forecast for the year.

The peso was also dragged down by mixed comments from US Federal Reserve officials, Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

Comments last week from Fed Chair Jerome H. Powell had reinforced the view that rate cuts were likely to commence in 2024, Reuters reported. But on Thursday, Minneapolis Fed President Neel Kashkari said rate cuts might not be required this year.

For this week, peso-dollar trading will depend on the BSP’s policy decision on Monday, Mr. Ricafort said.

The BSP is widely expected to keep benchmark interest rates steady this week amid lingering inflation risks, analysts said.

All 16 analysts in a BusinessWorld poll conducted last week expect the Monetary Board to maintain the target reverse repurchase rate at a near 17-year high of 6.5% at its policy meeting on April 8.

If realized, it would be the fourth straight meeting the BSP kept its policy rate unchanged since the 25-basis-point (bp) off-cycle hike on Oct. 26, 2023.

The Monetary Board raised borrowing costs by 450 bps from May 2022 to October 2023 to help bring down elevated inflation. BSP Governor Eli M. Remolona, Jr. has said that they could consider cutting rates by the second semester if inflation is firmly within their 2-4% annual goal.

Mr. Roces added that the market could take cues from US nonfarm payrolls data released on Friday.

The US Labor department reported that nonfarm payrolls increased by 303,000 in March, far ahead of a forecast rise of 200,000 from economists polled by Reuters.

Mr. Ricafort sees the peso moving between PHP 56.20 and PHP 56.70 per dollar this week, while Mr. Roces expects it to range from PHP 56.35 to PHP 56.80. — A.M.C. Sy with Reuters