Peso maintains strength on possible future interest rate increases
THE PESO further appreciated on Wednesday after the central bank鈥檚 hawkish view on future rate hikes, driving the local currency鈥檚 strength not seen since its July 4 finish of P55.08 per dollar.
It ended at P55.10 against the greenback, up by 14 centavos from Tuesday鈥檚 P55.24 close, data from the Bankers Association of the Philippines showed.
After opening at P55.10 per dollar, the peso reached its weakest showing on Wednesday鈥檚 session at P55.29. Its intraday best was at P55.04 versus the greenback. Dollars traded inched down to $833.7 million from $940.55 million on Tuesday.
A trader said in an e-mail that the peso strengthened after the Bangko Sentral ng Pilipinas (BSP) said on Tuesday that it might hike borrowing costs by 25 basis points (bps) in the next two policy meetings.
鈥淭he peso strengthened after BSP Governor [Felipe M.] Medalla hinted at more local policy rate hikes in 2023,鈥 the trader said.
The BSP said it aims to bring inflation to nearly 3% by the third quarter.
鈥淥ur goal is to have inflation between 2-4%, preferably closer to 3% than to 4% by the third quarter of next year, and then the fourth quarter until 2024 will also be like that. That鈥檚 our goal,鈥 Mr. Medalla told reporters on Tuesday.
National inflation accelerated to a 14-year high of 8% in November, bringing the full-year average to 5.6%.
The inflation figure is lower than the BSP鈥檚 5.8% forecast for the whole year but well above its 2-4% target.
The BSP raised borrowing costs by 50 basis points (bps) to 5.5% on Dec. 15, bringing the policy rate to its highest since November 2008 when it was at 6%.
The Monetary Board has hiked rates by a total of 350 bps since May.
Mr. Medalla said that the central bank might consider smaller rate hikes next year, noting a higher chance of 25-bp or 50-bp rate increases at its next two policy meetings.
Meanwhile, a second trader said via Viber that the peso鈥檚 strength was more due to 鈥渄ecent鈥 dollar inflows.
In a Viber message, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort credited the peso鈥檚 further strengthening to the timing of the last two trading days before Christmas, which also caused the continued seasonal increase in foreign exchange inflows.
For Thursday鈥檚 movement, Mr. Ricafort expects the local currency to range between P55 and P55.20. The first trader gave a similar forecast of P55 to P55.25 while the second trader sees the peso moving at a range of P55 to P55.35 per dollar. 鈥 Aaron Michael C. Sy
