Peso to strengthen as BSP halts easing cycle

THE PESO is seen to climb this week on the back of local economic data coming up and signals of a pause in monetary easing from the central bank.

The local unit closed at P50.49 against the greenback on Friday, depreciating by less than a centavo from the P50.481-a-dollar finish on Thursday, according to data from the Bankers’ Association of the Philippines.

Week on week, it appreciated by 25 centavos from its close of P50.74 on Oct. 31.

Dollars traded on Friday slipped to $789.65 million from $1.15 billion seen on Thursday.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael L. Ricafort attributed the peso’s weakness to factors such as US-China trade developments and US data.

“The peso was slightly weaker…due to positive developments in the US-China trade talks particularly the optimism on the possible phase one trade deal in the coming weeks… Stronger US economic data on initial jobless claims also supported the slight upward correction in the US dollar,” Mr. Ricafort said in a text message.

Meanwhile, UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion said the peso’s sideway movements could be due to the lack of leads.

“The peso was steady on Friday after the higher-than-expected Q3 GDP (gross domestic product) on Thursday and this is due to lack of drivers [on Friday],” he said in a text message.

The United States and China have agreed to roll back tariffs on each others’ goods in a “phase one” trade deal if it is completed, officials from both sides said on Thursday, sparking division among some advisers to US President Donald Trump.

The Chinese Commerce Ministry, without laying out a timetable, said the two countries had agreed to cancel the tariffs in phases.

Meanwhile, data from the Philippine Statistics Authority (PSA) showed the Philippine economy grew 6.2% in the third quarter, with the government catching up on spending after delays in the passage of the national budget took its toll on expansion in the first half.

For this week, economists believe the peso’s performance will gain traction from the market taking cues that there will be no more monetary easing in the upcoming Bangko Sentral ng Pilipinas (BSP) policy review and the slew of data to be reported this week, including foreign direct investments (FDI).

“The upcoming BSP monetary policy meeting would be the major lead… No cut on policy rates would support sentiment on the peso, in view of the [recent] Fed rate cut as this would increase the peso’s interest rate premium over comparable US interest rate benchmarks, thereby making the peso more attractive with relatively higher interest rate returns without a local policy rate cut,” RCBC’s Mr. Ricafort said.

UnionBank’s Mr. Asuncion also sees the upcoming Monetary Board meeting to affect the peso’s performance as well as the upcoming FDI data.

“The local currency’s strength next week is expected to be driven by FDI data release and the BSP’s interest rate decision,” he said.

BSP Governor Benjamin E. Diokno told ANC and Bloomberg earlier this month that the central bank is done cutting rates for this year. The Monetary Board’s policy meeting is set on Thursday, Nov. 14.

Mr. Diokno also said the current monetary policy “remains appropriate” as the “economy is back on track to a strong growth path” following the release of data showing gross domestic product growth of 6.2% in the third quarter.

So far, the central bank has already slashed benchmark interest rates by 75 basis points this year, partially dialling back the 175-bps rate hike barrage in 2018 amid an elevated inflation environment.

Meanwhile, the central bank is set to report the FDI in August today. Data on remittances and hot money will also be released by Friday.

For this week, RCBC’s Mr. Ricafort expects that the peso will trade at a range of P50.25-50.65, while UnionBank’s Mr. Asuncion believes the local unit will play around the P50.30-50.60 band. — Luz Wendy T. Noble with Reuters