Peso rebounds as market expects BSP to pause hikes

THE PESO strengthened against the dollar on Wednesday amid bets that the central bank could pause its tightening cycle after headline inflation eased in April.

The local currency closed at PHP 55.67 versus the dollar on Wednesday, appreciating by nine centavos from Tuesday’s PHP 55.76 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Wednesday’s session at PHP 55.72 per dollar. Its worst showing for the day was at PHP 55.88, while its intraday best was its close of PHP 55.67 versus the greenback.

Dollars traded went down to USD 1.41 billion on Wednesday from the USD 1.659 billion recorded on Tuesday.

“The peso appreciated amid growing views that the BSP (Bangko Sentral ng Pilipinas) might consider pausing interest rate hikes at its May policy meeting,” a trader said in an e-mail.

BSP Governor Felipe M. Medalla last month said the Monetary Board could consider holding rates steady at their May 18 meeting if inflation eased further in April.

The BSP has raised benchmark interest rates by 425 basis points since May 2022 to help bring down elevated inflation, with its policy rate now at a 16-year high of 6.25%.

Headline inflation eased to 6.6% in April, the slowest in eight months or since the 6.3% print in August 2022, data from the Philippine Statistics Authority showed.

This was slower than the 7.6% in March and the 7% median estimate in a BusinessWorld poll. It was within the central bank’s 6.3-7.1% forecast range for the month.

For the first four months, inflation averaged at 7.9%, still above the BSP’s 2-4% target and 6% forecast for the year.

The peso also appreciated after New York Federal Reserve President John Williams said on Tuesday that it was too soon for the US central bank to stop raising rates, Mr. Ricafort said.

“We haven’t said we are done raising rates” and Fed officials have not yet decided what lies ahead with possible increases in short-term borrowing costs, Mr. Williams said at an Economic Club of New York gathering, Reuters reported.

“We’ve made incredible progress” in taking action to lower overly high levels of inflation, but “if additional policy firming is appropriate, we’ll do that,” he added.

For Thursday, the trader said the peso could strengthen ahead of a potentially upbeat Philippine gross domestic product report.

The trader expects the peso to trade between PHP 55.50 and PHP 55.75 against the dollar, while Mr. Ricafort sees it moving from PHP 55.60 to PHP 55.80. — By  AMCS with Reuters