Peso weakens vs dollar ahead of US inflation data

THE PESO weakened against the dollar ahead of the release of December US consumer price index (CPI) data and after the Bangko Sentral ng Pilipinas (BSP) chief said they could cut banks’ reserve requirement ratio (RRR) this year.

The local currency closed at P55.29 versus the greenback on Thursday, dropping by 49 centavos from Wednesday’s P54.80 close, data from the Bankers Association of the Philippines showed.

The peso opened Thursday’s trading session weaker at P54.95 per dollar, which was already its intraday best. It dropped to as low as P55.42 against the greenback during the session.

Dollars traded climbed to $1.458 billion from $1.005 billion on Wednesday.

“The peso weakened significantly due to some caution ahead of the US consumer inflation report overnight. The local currency will be expected to react [on Friday] to this data,” a trader said in an e-mail.

The hope is that falling inflation reduces the need for interest rate hikes, and markets have priced better-than-even odds that the Federal Reserve slows its cracking pace and hikes by 25 basis points (bps), rather than 50, at their first meeting for this year, Reuters reported.

The Fed will hold its first policy meeting for 2023 on Jan. 31 to Feb. 1. It hiked borrowing costs by 425 bps in 2022, bringing the federal funds rate to a 4.25%-4.5% range.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso corrected lower after BSP Governor Felipe M. Medalla on Thursday said they could cut in banks’ RRR in the first half of 2023 or if they no longer need to raise benchmark interest rates.

The BSP earlier committed to bringing down the RRR of big banks to single digits by 2023.

The reserve ratio for big banks is currently at 12%, one of the highest in the region. Reserve requirements for thrift and rural lenders are at 3% and 2%, respectively.

The peso also weakened after oil prices rose on Wednesday, Mr. Ricafort added.

Brent futures climbed $2.57 or 3.2% to settle at $82.67 a barrel on Wednesday, while US West Texas Intermediate crude rose $2.29 or 3.1% to settle at $77.41.

For Friday, the trader and Mr. Ricafort expect the peso to move between P55.20 and P55.40 against the dollar. — A.M.C. Sy with Reuters