Peso hits 4-month high as BSP starts easing cycle

The peso hit a four-month high against the dollar on Thursday as the Bangko Sentral ng Pilipinas (BSP) cut benchmark rates for the first time in nearly four years.

The local unit closed at PHP 56.90 per dollar on Thursday, strengthening by 5.5 centavos from its PHP 56.955 finish on Wednesday, Bankers Association of the Philippines data showed.

This was the peso’s best finish in four months or since its PHP 56.808-a-dollar close on April 15.

The peso opened Thursday’s session stronger at PHP 56.97 against the dollar. Its weakest showing was at PHP 57.14, while its intraday best was its close of PHP 56.90 versus the greenback.

Dollars exchanged went down to USD 1.33 billion on Thursday from USD 1.34 billion on Wednesday.

The peso appreciated against the dollar after the central bank cut benchmark interest rates, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The Philippine peso initially depreciated by as much as 0.3% after the Bangko Sentral ng Pilipinas slashed its key interest rate by 25 basis points (bps). However, the currency quickly recovered its losses as market participants shifted their attention to the broader economic outlook,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

The Monetary Board on Thursday cut benchmark interest rates for the first time since November 2020 amid expectations of easing inflation and an improving economic outlook.

The central bank reduced its target reverse repurchase rate by 25 bps to 6.25%, as expected by nine out of 16 analysts in a BusinessWorld poll conducted last week.

Prior to the cut, the BSP kept its policy rate at an over 17-year high of 6.5% since October 2023 following cumulative hikes worth 450 bps to combat inflation.

“With inflation on a target-consistent path, the current macroeconomic outlook supports a calibrated shift to a less restrictive monetary policy stance. Nonetheless, monetary authorities remain mindful of lingering upside risks to prices,” BSP Governor Eli M. Remolona, Jr. said at a briefing on Thursday. “Going forward, the Monetary Board will continue to take a measured approach in ensuring price stability conducive to balanced and sustainable growth of the economy and employment.”

The BSP revised its risk-adjusted inflation forecasts for 2024 to 3.3% from 3.1% previously and 2.9% for 2025 from 3.1%. It also set its risk-adjusted forecast for 2026 at 3.3%. The baseline forecasts were also adjusted to 3.4% from 3.3% for 2024, 3.1% from 3.2% for 2025, and 3.2% from 3.3% for 2026.

Meanwhile, Philippine gross domestic product expanded by 6.3% in the second quarter, faster than 5.8% in the previous quarter and 4.3% a year ago.

For Friday, Mr. Ricafort sees the peso ranging from PHP 56.80 to PHP 57 per dollar.

SOFT DOLLAR

The dollar was soft on Thursday after data showed US inflation was slowing, underpinning wagers that the Federal Reserve could lower borrowing costs next month, Reuters reported.

The dollar index, which measures the US unit versus six rivals, was last at 102.59, not far from the eight-month low of 102.15 it touched last week. The index is on course for its fourth straight week in the red, a run it last had in March-April 2023.

Data on Wednesday showed the consumer price index rose moderately, in line with expectations, and the annual increase in inflation slowed to below 3% for the first time since early 2021.

The figures add to the mild increase in producer prices in July, suggesting that inflation is on a downward trend, although traders are now anticipating the Fed to be not as aggressive on rate cuts as they had hoped.

Markets are now pricing in 64% chance of a 25 bps cut next month and a 36% chance of a 50 bps reduction, the CME FedWatch tool showed. Traders were evenly split at the start of the week between the two cut options following last week’s sell-off. Markets anticipate 100 bps of cuts this year from the Fed. — A.M.C. Sy with Reuters