Peso may rise before central bank review

THE PESO may strengthen this week on expectations that the central bank will raise benchmark rates anew at its meeting on Thursday. 

The local unit ended at P55.61 per dollar on Friday, weaker by 31 centavos from its P55.30 close on Thursday, based on Bankers Association of the Philippines data.

It also depreciated by 41 centavos from its P55.20-a-dollar finish a week earlier.

The peso depreciated after hawkish signals from another US Federal Reserve official, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Federal Reserve Bank of San Francisco President Mary Daly on Thursday said she is open to a bigger rate hike at the Fed’s Sept. 20-21 meeting if inflation remains persistently elevated.

There was also risk-off sentiment in the market as oil prices increased after several days of decline, Mr. Ricafort added.

For this week, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said a widely expected hawkish move from the Bangko Sentral ng Pilipinas (BSP) will affect the foreign exchange market. He said the market will monitor the BSP’s forward guidance amid elevated inflation and a softening economy recovery.

Mr. Asuncion added that the peso may strengthen as the dollar has dropped from its recent highs.

The majority of 18 analysts polled by BusinessWorld last week expect the Monetary Board to raise benchmark rates on Aug. 18, while two see no changes to borrowing costs.

Of the 16 analysts expecting a rate hike, 13 see a 50-basis-point (bp) increase while three anticipate a 25-bp move.

BSP Governor Felipe M. Medalla earlier said the central bank’s policy-setting Monetary Board may hike rates by 50 bps at their Aug. 18 meeting after headline inflation surged to a near four-year high of 6.4% in July from 6.1% in June and 3.7% a year ago.

For the first seven months, inflation averaged 4.7%, faster than the 4% seen in the same period in 2021 and the central bank’s 2-4% target for the year but lower than its 5% forecast.

For this week, Mr. Asuncion expects the peso to move from P55 to P55.60 a dollar, while Mr. Ricafort gave a forecast range of P55.30 to P55.80. — K.B. Ta-asan