Peso rebounds vs dollar as BSP delivers large interest rate hike

THE PESO strengthened against the dollar on Thursday after the Bangko Sentral ng Pilipinas (BSP) delivered another large increase in benchmark interest rates.

The local currency closed at PHP 55.12 versus the greenback on Thursday, climbing by five centavos from Wednesday’s PHP 55.17 finish, Bankers Association of the Philippines data showed.

The peso opened Thursday’s trading session weaker at PHP 55.35 per dollar. Its intraday best was at PHP 55.02, while its worst showing was at PHP 55.39 against the greenback.

Dollars traded rose to USD 1.14 billion on Thursday from USD 1.072 billion on Wednesday.

“The peso appreciated amid expectations of a strong BSP policy rate hike today,” a trader said in a Viber message on Thursday.

The peso strengthened “after the larger local policy rate hike of 50 basis points (bps) to 6%… that could support the peso with higher interest differential versus the dollar,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said in a Viber message.

The BSP on Thursday hiked benchmark interest rates by 50 bps for a second straight meeting, bringing its policy rate to 6%, amid higher prices and rising inflation expectations.

The rates on the central bank’s overnight deposit and lending facilities were also increased to 5.5% and 6.5%, respectively.

The BSP has now hiked borrowing costs by 400 bps since May 2022.

Headline inflation rose by 8.7% year on year in January, faster than 8.1% in December 2022 and marking the 10^th straight month that it exceeded the central bank’s 2-4% target for the year.

Meanwhile, the US Federal Reserve earlier this month raised its target interest rate by 25 bps to a range between 4.5% and 4.75%, bringing cumulative hikes since March 2022 to 450 bps.

Stronger foreign investments data for 2022 and the government’s recently concluded retail Treasury bond (RTB) offer also supported the peso, Mr. Ricafort added.

Approved foreign investment pledges rose by 25.6% last year, preliminary data from the Philippine Statistics Authority showed.

Total approved foreign investments stood at PHP 241.89 billion last year, higher than the P192.55 billion in 2021 and more than double the PHP 112.12 billion recorded in 2020.

Foreign investments jumped by 30.1% year on year to PHP 173.61 billion in the fourth quarter of 2022. The growth was slower than the 265.8% seen in the final three months of 2021 but was a turnaround from the 22.4% decline in the third quarter last year.

Last quarter’s foreign investment haul was the largest in 13 straight quarters or since the PHP 182.44 billion seen in the third quarter of 2019.

Meanwhile, the government raised PHP 283.711 billion from its offering of 5.5-year RTBs that ended two days ahead of schedule, National Treasurer Rosalia V. de Leon told reporters on Wednesday.

Of this total, the government raised PHP 31.671 billion from the bond exchange offer program.

The 5.5-year retail bonds carry a coupon rate of 6.125%.

For Friday, the trader said the peso may strengthen further against the dollar following the BSP’s latest policy move.

“The 25-bp differential from the Fed’s adjustment will be beneficial in favor of the peso relative to the greenback,” the trader added.

The trader sees the peso moving between PHP 54.95 and P55.20 versus the greenback on Friday, while Mr. Ricafort gave a forecast range of PHP 55 to PHP 55.20. — AMCS