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Peso may continue to climb vs dollar ahead of inflation data

CRECENCIO I. CRUZ

THE PESO may continue to strengthen against the dollar this week ahead of the release of November inflation data that could give the Bangko Sentral ng Pilipinas (BSP) impetus to hike interest rates further.

The local unit returned to the P55-per-dollar level on Friday, closing at P55.74, surging by 48 centavos from its P56.22 finish on Thursday, Bankers’ Association of the Philippines data showed.

This is the peso’s strongest close in nearly four months or since the P55.61 close on Aug. 12.

Week on week, the local unit appreciated by 93 centavos from its P56.67 close on Nov. 25.

The peso opened Friday’s session at P56.20 per dollar, which was also its weakest showing. Its intraday best was at P55.71 against the greenback.

Dollars exchanged rose to $1.28 billion on Friday from $898.7 million on Thursday.

The peso strengthened on Friday on the back of policy signals from the Philippine central bank chief, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

BSP Governor Felipe M. Medalla on Friday said the central bank is likely to hike interest rates anew this month, but the Monetary Board has yet to decide whether to tighten by 25 or 50 basis points (bps) on Dec. 15 following dovish hints from the US Federal Reserve chief.

“Certainly, we will not do zero and I cannot speak for the rest of the board. But I think the board members will probably be split between whether doing 25 or 50 (bps),” Mr. Medalla said in an interview with Bloomberg TV.

Fed Chair Jerome H. Powell last week signaled it was time to slow the pace of coming rate increases. The US central bank now widely expected to raise rates by just 50 bps in its last policy meeting for the year to be held on Dec. 13-14 following four straight 75-bp hikes.

The Fed has raised borrowing costs by 375 bps since March to a range between 3.75% and 4%.

Meanwhile, the BSP has hiked benchmark rates by 300 bps since May to keep rising prices in check, with the policy rate now at 5%.

The peso also rose “ahead of the expected seasonal increase in OFW (overseas Filipino workers) remittances and conversion to pesos before the holiday season,” Mr. Ricafort said. 

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion noted that the peso’s movement against the dollar throughout November stood out as the best monthly performance of the currency since 2017. 

This is largely attributed to money sent home by migrant Filipinos as the year ends. Inflows of remittances should continue to support the easing pressures on the foreign exchange volatility with the coming holidays, Mr. Asuncion said.

For this week, he said the peso may continue to strengthen as market players recalibrate their Fed and BSP rate hike expectations. 

Mr. Ricafort also said the market will be on the lookout for key local data releases this week, namely reports on November inflation, labor and dollar reserves.   

A BusinessWorld poll of 15 analysts yielded a median estimate of 7.8% for November inflation, within the BSP’s 7.4-8.2% forecast for the month.

If realized, this would mark the eighth straight month of inflation breaching the BSP’s 2-4% target. It will also be the fastest in 14 years or since the 9.1% in November 2008.

For this week, Mr. Ricafort expects the local unit to move from P55.30 to P56 per dollar, while Mr. Asuncion gave a lower forecast range of P56.30 to P55.80. — Keisha B. Ta-asan

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