Peso seen to strengthen vs dollar ahead of central bank’s meeting

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THE PESO may climb further against the dollar this week as the market expects the Bangko Sentral ng Pilipinas to hike benchmark interest rates aggressively. — BW FILE PHOTO

THE PESO may continue to strengthen against the dollar this week as the Bangko Sentral ng Pilipinas (BSP) is expected to hike borrowing costs aggressively on Thursday.

The local unit closed at P57.23 on Friday, surging by 96 centavos from its P58.19 finish on Thursday, data from the Bankers Association of the Philippines showed.

This was the peso’s best close in nearly two months or since it finished at P57.16 a dollar on Sept. 15.

The local unit also appreciated by P1.32 from its P58.55-a-dollar close on Nov. 4.

The peso opened Friday’s trading session at P57.40 per dollar. Its weakest showing was at P57.59, while its intraday best was at P57.14 against the greenback.

Dollars exchanged went up to $820.15 million on Friday from $792 million on Thursday.

The peso strengthened on Friday following better-than-expected October US inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US consumer price index (CPI) rose to 7.7% annually in October, easing from the 8.2% print in September. This is the first time the CPI went below 8% since February.

Month on month, the CPI rose 0.4% after climbing by the same margin in September.

The slower-than-expected annual print may mean the US Federal Reserve can begin to scale down its rate hikes as early as its Dec. 13-14 meeting.

The Fed has already raised rates by 375 basis points (bps) since March, with the latest move being a fourth straight 75-bp rate increase this month.

The peso also appreciated versus the dollar on Friday after China eased some of its strict coronavirus disease 2019 (COVID-19) restrictions, Mr. Ricafort said.

The stronger-than-expected Philippine gross domestic product (GDP) growth and the pickup in foreign direct investments (FDIs) also supported the currency, he added.

Philippine GDP grew by 7.6% in the third quarter, slightly faster than the revised 7.5% expansion in the second quarter and 7% a year earlier.

Meanwhile, FDI net inflows fell by 19.2% to $797 million from $987 million a year earlier, BSP data released last week showed. Month on month, FDI net inflows were 73.3% higher than $460 million in July.

The strong third-quarter GDP print is seen to support the BSP’s expected decision to hike benchmark interest rates by 75 bps at its meeting on Thursday to match the Fed’s latest action, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

BSP Governor Felipe M. Medalla last week said they will match the Fed point-by-point to help bring inflation back within target and support the currency.

Headline inflation surged to a near 14-year high of 7.7% in October. For the first 10 months, inflation averaged 5.4%, still lower than the BSP’s 5.6% full-year forecast but higher than its 2-4% target.

For this week, aside from the BSP’s policy meeting on Thursday, market players will also be on the lookout for the release of remittances and balance of payments data, Mr. Ricafort said.

Mr. Ricafort gave a forecast range of P56.75 to P57.75, while Mr. Asuncion expects the local unit to move within a weaker range of P57.90 to P58.50 a dollar. — K.B. Ta-asan