Peso inches up on Fed framework

THE PESO inched higher on Tuesday on the US central bank’s new policy framework and despite data showing the local manufacturing sector slowed in August.

The local unit closed at P48.48 versus the greenback on Tuesday, inching up from the P48.485-a-dollar finish last Friday, data from the Bankers Association of the Philippines showed.

Markets were closed on Monday for National Heroes’ Day.

The peso opened Tuesday’s session at P48.48 against the greenback. It hit a low of P48.545 while its intraday best was at P48.44 per dollar.

Dollars traded sank to $819.1 million on Tuesday from Friday’s $1.191 billion.

A trader said demand for dollars dropped following the US Federal Reserve’s announcement of a new policy framework last week.

“The local currency might gain more strength as statements from various US Federal Reserve officials are likely to provide more cues to the Fed’s new inflation strategy,” the trader said.

Meanwhile, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the peso strengthened as the outlook for the local manufacturing industry indicates little need for imports.

“Weaker Philippine manufacturers’ data would eventually slow down imports and the demand for dollars to pay for the imports,” Mr. Ricafort said.

Manufacturing activity worsened in August for the sixth month in a row, as the government placed Metro Manila and nearby provinces under a stricter lockdown, pulling down production and new orders, IHS Markit said in its latest survey.

The IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI) slid to 47.3 last month from 48.4 in July to “signal a stronger deterioration in operating conditions,” it said in a statement. This was higher than the record low of 31.6 in April but still below the 50-neutral mark.

A PMI reading below 50 signals deterioration in operating conditions compared to the preceding month, while a reading above 50 denotes improvement.

For today, Mr. Ricafort said he expects the peso to trade within P48.40 to P48.55 versus the dollar, while the trader sees it moving at the P48.40 to P48.60 levels.

PESO AMONG STRONGEST IN ASIA
The Philippine peso maintained its position among the strongest currencies in Asia amid the coronavirus pandemic, buoyed by benign inflation and a surfeit in its balance of payments (BoP), the Department of Finance (DoF) said on Tuesday.

The DoF said the peso’s Tuesday close is up by 4.5% from the P50.80-per dollar finish on Jan. 2.

It said the Philippine peso, the Japanese yen, the Taiwanese dollar and the Chinese yuan are the only currencies that “remained firmed against the American greenback while most other Asian currencies have weakened” year to date.

In a forum last month, Finance Secretary Carlos G. Dominguez III attributed the strength to mild inflation rate and the favorable BoP position.

But while a strong peso means cheaper imports and lower borrowing costs, Philippine Chamber of Commerce and Industry (PCCI) President Benedicto V. Yujuico said it is not “the greatest thing in the world” and urged the government to “strike a balance” to consider its impact on some sectors, including the exporters.

“I want to ask the question, what is a strong peso good for?… There are no easy answers particularly during this time of crisis. We have to examine it very carefully, we have to strike a balance here,” Mr. Yujuico said during the 29^th Visayas Area Business Conference forum last week.

“I just want to ventilate that a strong peso is probably something that we have to think about very carefully and reconsider at this time,” he added.

Sergio R. Ortiz-Luis, Jr., president of the Philippine Exporters Confederation, Inc. (Philexport) said the strong peso is “really harmful” for exporters and overseas Filipino workers and he would not “encourage strong peso unless it is extremely necessary.”

“It (policy decision) is the call of the Bangko Sentral ng Pilipinas. There’s a lot of things that can be done but it is the policy that we will not encourage (to favor) strong peso,” he said by telephone on Tuesday. — K.K.T. Jose and B.M. Laforga