Peso may drop vs dollar ahead of BSP policy review

THE PESO may weaken against the dollar this week as the market expects a big rate hike from the Bangko Sentral ng Pilipinas (BSP) after headline inflation surged in January.

The local unit closed at P54.42 per dollar on Friday, strengthening by three centavos from its P54.45 finish on Thursday, data from the Bankers Association of the Philippines’ website showed.

Week on week, however, the peso dropped by 74 centavos from its P53.68 finish on Feb. 3.

The peso opened Friday’s session at P54.65 per dollar. Its weakest showing was at P54.70, while its intraday best was at P54.40 against the greenback.

Dollars exchanged went down to $1.248 billion on Friday from $1.375 billion on Thursday.

The peso strengthened on Friday “after a gauge of the US dollar versus major global currencies again corrected slightly lower from near one-month highs recently,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar index was up 0.4% at 103.55 on Friday as investors await the US consumer price index (CPI) report to be released on Feb. 14.

For this week, Mr. Ricafort said peso-dollar trading could be driven by sentiment ahead of the BSP’s policy meeting on Feb. 16, Thursday.

He said he expects a 25-basis-point (bp) increase in borrowing costs at the meeting to match the US Federal Reserve’s move.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a report that the “disappointing” January inflation report has fueled bets that the BSP will hike rates by as much as 50 bps on Thursday.

“A BSP more hawkish than the (US Federal Reserve) in their first policy meetings this year, could spill over into a firmer peso later in the week,” he said.

“The peso will also benefit from flows attracted by the latest retail Treasury bond (RTB) issuance whose settlement starts on Feb. 22,” Mr. Asuncion added.

Headline inflation accelerated to a new 14-year high of 8.7% in January as food prices continued to surge, causing renewed rate hike worries.

This was faster than the 8.1% print in December 2022 and 3% in the same month last year. It also marked the 10^th consecutive month that inflation was above the BSP’s 2-4% target for the year.

The BSP’s policy-setting Monetary Board last year raised interest rates by 350 bps, bringing its key rate to a 14-year high of 5.5%.

Meanwhile, the government last week raised an initial P162.18 billion from the rate-setting auction for its offer of 5.5-year RTBs.

Tenders hit P196.109 billion, or more than six times the P30 billion on the auction block. The RTBs were awarded at a coupon rate of 6.125%.

Mr. Ricafort expects the peso to trade between P54.20 and P54.70 per dollar this week, while Mr. Asuncion sees the local unit moving from P54.10 to P55. — A.M.C. Sy