Peso to climb on rate hike expectations

THE PESO could strengthen against the dollar this week as the market expects the Bangko Sentral ng Pilipinas (BSP) to deliver another large rate hike at its next meeting as inflation could have reached a fresh peak last month.

The local currency closed at PHP 54.82 versus the greenback on Friday, appreciating by 19 centavos from Thursday’s PHP 55.01 finish, Bankers Association of the Philippines data showed.

Week on week, the peso rose by five centavos from its PHP 54.87 finish on February 23.

The peso opened Friday’s session at PHP 54.95 per dollar. Its weakest showing was at PHP 54.98, while its intraday best was at PHP 54.745 against the greenback.

Dollars exchanged rose to USD 1.287 billion on Friday from USD 1.276 billion on Thursday.

The peso appreciated against the dollar following hawkish statements from the Bangko Sentral ng Pilipinas (BSP) chief, a trader said in a Viber message.

“This could also support more comfortable interest rate differentials that somewhat support the peso,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Felipe M. Medalla on Friday said they could hike borrowing costs by another 50 basis points (bps) this month in the “worst-case scenario” of inflation rising above 9% in February.

The central bank’s move at its March 23 meeting could be a 25-bp or 50-bp rate increase, depending on the latest economic data, he said.

The BSP raised its benchmark interest rate by 50 bps at its first policy meeting of the year on February 16, bringing the key rate to 6%, the highest in nearly 16 years.

Since May 2022, the BSP has raised policy rates by a total of 400 bps.

For this week, the trader and Mr. Ricafort said the peso’s movement against the dollar will depend largely on the February inflation data.

A BusinessWorld poll of 17 analysts yielded a median estimate of 8.9% for February headline inflation, within the 8.5% to 9.3% estimate of the BSP.

If realized, this will be faster than the 14-year high print of 8.7% in January and the 3% a year earlier.

February would also mark the 11^th consecutive month inflation beat the BSP’s 2-4% target.

The Philippine Statistics Authority will release February consumer price index data on March 7, Tuesday.

Mr. Ricafort expects the peso to trade between PHP 54.60 and PHP 55.10 per dollar this week, while the trader sees the local unit moving from PHP 54.50 to PHP 55.25. — A.M.C. Sy