Peso strengthens to over one-week high on BSP, Fed rate cut hopes

THE PESO strengthened to an over one-week high against the dollar on Monday amid signals of further rate cuts from the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

The local unit closed at P58.45 per dollar on Monday, appreciating by 36 centavos from its P58.81 finish on Friday, Bankers Association of the Philippines data showed.

This was the peso’s best finish in over a week or since it closed at P58.24 against the greenback on Dec. 12.

The peso opened Monday’s session stronger at P58.70 against the dollar, which was already its worst showing for the day. Its intraday best was its closing level of P58.45.

Dollars exchanged went down to $1.18 billion on Monday from $1.33 billion on Friday.

The local currency was supported by the seasonal surge in overseas Filipino worker remittances ahead of the Christmas holiday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The peso continued to strengthen following rate cut signals from BSP Governor Eli M. Remolona, Jr., Mr. Ricafort added.

On Friday, Mr. Remolona told Bloomberg that the Monetary Board could deliver another rate cut at their first policy meeting next year, noting that they are “neither more dovish nor less dovish.”

The Monetary Board on Thursday cut benchmark interest rates by 25 basis points (bps) for a third straight meeting to bring the policy rate to 5.75% from 6%. The BSP has reduced borrowing costs by 75 bps since the start of its easing cycle in August.

“The peso gained after Fed official Goolsbee commented that US policy rates would be reduced by a ‘fair amount’ next year, easing initial market concerns of a less aggressive cutting pace by the US central bank which prevailed after the latest Fed policy meeting last Thursday,” a trader said in a Viber message.

Chicago Federal Reserve President Austan Goolsbee said on Friday he now projects a shallower rate-cutting path in 2025 than he had previously, but added he still believes the US central bank’s policy rate will fall a “judicious amount” next year, Reuters reported.

“The uncertainty about policy makes it particularly hard to make estimates of what the neutral rate is and what the inflation rate is in particular,” Mr. Goolsbee told CNBC.

With the policy rate well above its eventual stopping point of around 3%, Mr. Goolsbee said, dropping inflation means the Fed will need to bring it down “a fair bit” over the next 12 to 18 months.

Mr. Goolsbee had previously indicated he felt rates would need to fall by 100 basis points next year, in line with the previous view of his fellow policy makers. Projections released last week after the Fed cut its policy rate by a quarter of a percentage point to the 4.25%-4.5% range show most US central bankers see just 50 bps of cuts next year.

For Thursday, the trader said the peso could appreciate amid continued inflows amid the holidays. The trader sees the peso moving between P58.30 and P58.55 per dollar, while Mr. Ricafort sees it trading from P58.25 to P58.65. — Luisa Maria Jacinta C. Jocsonwith Reuters