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Peso drops further on inflation fears

BW FILE PHOTO

THE PESO dropped further against the dollar on Wednesday due to inflationary concerns as the Bangko Sentral ng Pilipinas (BSP) expects the headline figure to have reached at least 5% in May and the European Union’s (EU) Russian oil embargo.

The local unit closed at P52.48 per dollar on Wednesday, losing 11 centavos from its P52.37 finish on Tuesday, based on Bankers Association of the Philippines data.

The peso opened Wednesday’s session at P52.43 versus the dollar. Its weakest showing was at P52.49, while its intraday best was at P52.42 against the greenback.

Dollars exchanged declined to $724.22 million on Wednesday from $925.62 million on Tuesday.

The local unit weakened due to the BSP’s high estimate for May inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Headline inflation likely quickened and breached 5% in May due to higher pump and food prices and a weaker peso, the BSP chief said on Tuesday.

May inflation may have reached between 5% and 5.8%, BSP Governor Benjamin E. Diokno said. This is well above the 2-4% target of the central bank for this year.

The consumer price index last hit the 5% level in December 2018 and stood at 5.2% that month.

May inflation data will be released by the Philippine Statistics Authority on June 7. Headline inflation was at 4.9% in April, the highest in more than three years.

Inflationary concerns are also growing after the EU approved a partial ban on Russian oil imports, a trader said.

“Peso also weaker as global crude oil prices remained volatile to among the highest in 2-2.5 months, as this could increase the country’s oil import bill,” Mr. Ricafort added.

EU leaders handed Hungary concessions to agree an oil embargo on Russia over its invasion of Ukraine, sealing a deal in the wee hours on Tuesday that aims to cut 90% of Russia’s crude imports into the bloc by the end of the year, Reuters reported.

The embargo — once legally imposed in the coming days — will hit seaborne shipments of Russian oil and encompass most imports from Russia once Poland and Germany stop buying it by the end of 2022, which diplomats and officials from both countries said was now government policy.

Oil prices extended gains on Tuesday after the EU agreed to slash oil imports from Russia, fueling worries of a tighter market already strained for supply amid rising demand ahead of peak US and European summer driving season.

US West Texas Intermediate crude was trading at $119.12 a barrel up $4.05 or 3.5% from Friday’s close. There was no settlement on Monday due to a US public holiday. Both benchmarks have posted daily gains since Wednesday.

For Thursday, the trader said the peso may weaken and test the P52.50-per-dollar level due to likely upbeat US job openings data that could give the US central bank an impetus to continue hiking rates aggressively.

The trader expects the peso to move between P52.40 and P52.55 versus the dollar, while Mr. Ricafort gave a forecast range of P52.35 to P52.50. — K.B. Ta-asan with Reuters

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