Peso hits fresh 19-month low as data support early BSP cut

The Philippine peso dropped to a fresh 19-month low against the greenback on Wednesday as slower-than-expected May inflation bolstered bets that the Philippine central bank would cut rates before the US Federal Reserve.

The local unit closed at PHP 58.78 per dollar on Wednesday, weakening by seven centavos from its PHP 58.71 finish on Tuesday, Bankers Association of the Philippines data showed.

This was the peso’s worst finish in over 19 months or since its P58.80-per-dollar close on Nov. 3, 2022.

The local unit is now down by PHP 3.41 from its end-2023 finish of P55.37 versus the greenback.

The peso opened Wednesday’s session weaker at PHP 58.80 against the dollar, which was also its worst showing for the day. Meanwhile, it climbed to as high as PHP 58.65 versus the greenback during the session.

Dollars exchanged inched up to USD 1.319 billion on Wednesday from USD 1.317 billion on Tuesday.

The peso was dragged down by slower-than-expected May inflation and less dovish signals from the Bangko Sentral ng Pilipinas (BSP), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso weakened as the softer-than-expected Philippine inflation report bolstered views of an earlier BSP rate cut in August,” a trader likewise said in an e-mail.

Headline inflation quickened for a fourth straight month in May 3.9% year on year from 3.8% in April.

This was slower than the 6.1% print in the same month a year ago and the 4% median estimate in a BusinessWorld poll of 16 analysts conducted last week. It was also within the BSP’s 3.7-4.5% forecast for May and marked the sixth straight month that inflation settled within the central bank’s 2-4% annual target range.

For the first five months, the CPI averaged 3.5%, within the BSP’s target band for 2024. The central bank expects inflation to average 3.5% this year.

BSP Governor Eli M. Remolona, Jr. on Tuesday reiterated that the Monetary Board could start cutting rates before the Fed despite a weaker peso recently.

Mr. Remolona earlier said the BSP could start its easing cycle with a 25-basis-point (bp) rate cut as early as the Monetary Board’s Aug. 15 meeting and slash rates once or twice in the second semester.

The Monetary Board last month kept its key rate steady at a 17-year high of 6.5%. The central bank raised borrowing costs by 450 bps from May 2022 to October 2023 to bring down inflation.

For Thursday, the trader said the peso could depreciate further on a potentially strong May US Institute for Supply Management non-manufacturing purchasing managers’ index data scheduled for release overnight.

The trader expects the peso to move between PHP 58.65 and PHP 58.90 on Thursday, while Mr. Ricafort sees it ranging from PHP 58.65 to PHP 58.85 per dollar. — A.M.C. Sy