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Peso likely to move sideways on rate hike bets

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THE PESO is expected to move sideways against the dollar this week as both the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) are likely to continue hiking rates to bring down inflation.

The local unit closed at P55.56 per dollar on Friday, rising by 12.5 centavos from its P55.685 finish on Thursday, Bankers Association of the Philippines data showed.

However, week on week, the peso weakened by 19 centavos from its P55.37 close on Dec. 9.

The peso opened Friday’s session weaker at P55.85 per dollar. It dropped to as low as P55.88, while its intraday best was at P55.56 against the greenback, which was also its closing level.

Dollars exchanged dropped to $902.27 million on Friday from the $1.055 billion recorded on Thursday.

The peso strengthened on Friday on the back of seasonal dollar inflows as the holidays draw near and as the BSP kept the door open for further rate hikes, a trader said in a Viber message.

The Philippine central bank on Thursday raised its benchmark interest rate to its highest in 14 years and signaled more tightening to bring inflation back within its target.

The Monetary Board increased its overnight borrowing rate by 50 basis points (bps) to 5.5%. The rates on the BSP’s overnight deposit and lending facilities were also increased to 5% and 6%, respectively.

Since May, the central bank has increased borrowing costs by a cumulative 350 bps.

The move followed a 50-bp hike by the Fed at its Dec. 13-14 meeting, which brought its own policy rate to 4.25-4.5%. The Fed has raised borrowing costs by 425 bps since March.

BSP Governor Felipe M. Medalla on Friday said the Monetary Board will likely continue hiking borrowing costs next year to ensure that inflation will return to its 2-4% target range next year.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the peso ended stronger on Friday amid the seasonal increase in remittances and holiday spending.

He added that the downward correction in global crude oil prices supported the peso.

Oil fell by more than $2 per barrel on Friday, with Brent crude futures settling at $79.04 per barrel, down $2.17 or 2.4%, while West Texas Intermediate futures fell by $1.82 or 2.4% to settle at $74.29 per barrel.

For this week, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the peso could move sideways as the Fed also hinted at further tightening, which could support the dollar.

Fed Chair Jerome H. Powell on Wednesday said the US central bank will deliver more interest rate hikes next year to get a firmer grip on inflation.

Still, the BSP’s own hawkish stance will provide some support for the peso, Mr. Asuncion added.

Mr. Ricafort said the release of balance of payments data on Monday will affect peso-dollar trading.

“The seasonal surge in remittances and conversion to pesos to finance the seasonal increase in holiday spending will factor into this week’s peso movement, especially with measures to further reopen the economy, including the optional wearing of face masks,” he added.

For this week, Mr. Ricafort expects the local unit to move from P55.30 to P55.80 per dollar, while Mr. Asuncion gave a wider forecast range of P54 to P56. The trader said the peso might move from P55 to P56 this week. — A.M.C. Sy

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