Peso to sustain strength as BSP remains hawkish

The peso could remain strong and stay at the PHP 55 level this week as hawkish signals from the central bank could support the currency.

The local unit closed at a fresh three-month high of PHP 55.67 per dollar on Friday, strengthening by 12 centavos from its PHP 55.79 finish on Thursday, based on Bankers Association of the Philippines data.

This was its best close in more than three months or since its PHP 55.52-per-dollar finish on Aug. 3.

Week on week, it gained 29 centavos from its PHP 55.96 close on Nov. 10.

The peso opened Friday’s session stronger at PHP 55.68 against the dollar. Its weakest showing was at PHP 55.69, while its intraday best was at PHP 55.62 versus the greenback.

Dollars exchanged went down to USD 1.18 billion on Friday from USD 1.28 billion on Thursday.

The peso strengthened on Friday amid a generally weaker dollar and lower global crude oil prices, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The local currency also found support from the seasonal increase in remittances as the holiday season nears, Mr. Ricafort said.

The dollar posted its second-steepest weekly decline versus other major currencies this year on Friday, while the yen strengthened sharply, and the dollar traded below 150 yen, as concerns grow about the weakening global economic outlook, Reuters reported.

Cooler-than-expected US inflation data on Tuesday and Wednesday hastened market expectations for how soon the Federal Reserve will cut rates. Such a move would weaken a major dollar support and could come as early as next year’s first quarter.

The dollar index, which measures the greenback against six other major currencies, slid to lows last seen on Sept. 1, while the yield on benchmark 10-year Treasury notes fell to a two-month low of 4.379%.

The dollar index fell 0.49% on the day, hitting a low of 103.85 that increased the greenback’s decline over the past five days to almost 1.8% — its biggest weekly drop since mid-July.

For this week, hawkish signals from the Bangko Sentral ng Pilipinas (BSP) could continue to prop up the peso, he added.

The BSP last week kept benchmark interest rates unchanged after inflation eased in October, but left the door open to more hikes if needed.

The Monetary Board on Thursday kept its policy rate steady at 6.5%, as expected by 15 of 18 analysts in a BusinessWorld poll. Interest rates on the central bank’s overnight deposit and lending facilities were also maintained at 6% and 7%, respectively.

This was the central bank’s first policy meeting after a 25-basis-point (bp) off-cycle rate hike on Oct. 26, which brought the target repurchase rate to its highest since mid-2007.

Since it began its tightening cycle in May 2022, the BSP has raised borrowing costs by a total of 450 bps.

BSP Deputy Governor Francisco G. Dakila, Jr. said keeping rates steady would allow previous tightening to continue to work their way through the economy, but said they are ready to resume hiking rates as needed to make sure inflation returns to the 2-4% annual target.

The Monetary Board will hold its last meeting for the year on Dec. 14.

For this week, Mr. Ricafort expects the peso to range from P55.40 to P55.90 per dollar. — AMCS with Reuters