Peso climbs on bank fears, BSP rate bets

THE PESO appreciated against the dollar on Monday on expectations of weaker global demand due to the ongoing turmoil in the banking sector and following dovish comments from a Monetary Board member.

The local currency closed at PHP 54.29 versus the dollar on Monday, rising by six centavos from Friday’s PHP 54.35 finish, data from the Bankers Association of the Philippines’ website showed.

The peso opened Monday’s session at PHP 54.33 per dollar. It posted an intraday best of PHP 54.26, while its worst showing for the day was at PHP 54.55 versus the greenback.

Dollars traded rose to USD 1.082 billion on Monday from the USD 1.036 billion recorded on Friday.

“The peso strengthened amid prospects of weaker global economic activity as market worries on the global banking sector resurfaced following reports of distress concerning Deutsche Bank,” a trader said in an e-mail.

Deutsche Bank, Germany’s largest bank, saw its shares fall by 8.5% on Friday as investors fretted that regulators and central banks have yet to contain the worst shock to the sector since the 2008 global financial crisis, Reuters reported.

The peso was also supported by dovish comments from Finance Secretary Benjamin E. Diokno, a member of the central bank’s policy-setting Monetary Board, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP is likely to pause its tightening cycle in May, Mr. Diokno said on Sunday.

“Contrary to some analysts’ view that the BSP (Bangko Sentral ng Pilipinas) Monetary Board could even push its policy interest rate higher than 6.5%, I think that the BSP is leaning towards a pause in its policy meeting in May,” he said.

“The (rate) adjustment’s full impact has yet to be absorbed by the economy, considering that monetary policy works with a lag, oftentimes a long lag,” Mr. Diokno added.

The Monetary Board last week hiked benchmark interest rates by 25 basis points (bps), bringing its key rate to 6.25%, the highest in nearly 16 years or since the 7.5% in May 2007.

The BSP has raised rates by a total of 425 bps since May 2022 to curb elevated inflation. Its next meeting is on May 18.

For Tuesday, the trader said the peso may strengthen further against the dollar on expectations of similar dovish remarks from US Federal Reserve officials.

The trader sees the peso moving between PHP 54.15 and PHP 54.40 per dollar on Tuesday, while Mr. Ricafort expects it to trade from PHP 54.20 to PHP 54.40. — AMCS with Reuters