Stronger peso expected before rate pause

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THE PESO is likely to appreciate versus the greenback as the market expects the Philippine central bank to keep benchmark interest rates at record lows at its meeting on Thursday.

The currency on Friday lost five centavos to close at P48.43 a dollar from a day earlier, according to data posted on the Bankers Association of the Philippines website. It weakened by 73 centavos from a week earlier.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc. traced the depreciation to market volatility after the US Federal Reserve said policy tightening could come earlier.

US central bank officials on Wednesday said rate increases could come a year earlier in 2023. Thirteen of 18 policy makers foresaw a “liftoff” in borrowing costs that year and 11 expected two quarter-percentage-point rate increases, Reuters reported.

Seven of the officials said they expected rates to start increasing next year.

Fed Chairman Jerome Powell said they had started initial discussions about when to pull back on the Fed’s $120 billion in monthly bond purchases.

The government’s move to continue reopening the economy was also a major factor that led to the depreciation of the peso, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. said in a text message. This could boost imports and demand for the dollar, he pointed out.

Mr. Ricafort expects the peso to trade from P48.30 to P48.50 against the dollar this week, while Mr. Asuncion expects it to move between P48.20 and P48.50.

President Rodrigo R. Duterte on Monday relaxed the lockdown in Metro Manila and Bulacan province due to easing coronavirus infections.

Investor sentiment, which could affect foreign exchange trading, would be affected by the central bank’s policy meeting, Mr. Asuncion said.

A BusinessWorld poll last week showed 14 out of 16 analysts expecting the central bank to keep rates unchanged to support the economy.

The market would also be watching the latest budget deficit data, Mr. Ricafort said. The Bureau of the Treasury is set to release the data on June 22.

The budget deficit fell to P44.4 billion in April from P273.9 billion a year earlier and from P191 billion in March. It was the lowest deficit in three months. — LWTN

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