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Peso closes at over seven-week low after RRR cuts

peso closes at over seven week low after rrr cuts 816x445 - Peso closes at over seven-week low after RRR cuts
Peso Dollar 120518 - Peso closes at over seven-week low after RRR cuts

THE peso plunged further against the dollar on Friday to its seven-week low, as market participants responded to the 200-basis-point reduction in the reserve requirement ratio (RRR) for big banks.

The peso ended the week at P52.63, against the P52.48 finish on Thursday.

This was the peso’s worst close in more than seven weeks. It closed at P52.75 on March 28.

The peso opened the session weaker at P52.55. It slipped to as low as P52.65 intraday, while its best showing was P52.445.

Trading volume spiked to $1.188 billion from $715.27 million in the previous session.

Foreign exchange traders attributed the peso’s slump to the recent cut by the Bangko Sentral ng Pilipinas to the RRR for commercial and universal banks.

“The peso traded weaker given the RRR cut that was done after the market closed yesterday,” one of the traders said in a phone interview.

The Bangko Sentral ng Pilipinas ordered a series of reductions in RRR. The rate will be reduced to 17% effective May 31, 16.5% effective June 28 and eventually to 16% effective July 26.

Big banks are currently required to keep in reserve at least 18% of deposits — a share considered as the highest in the region. Trimming the RRR will likely unleash about P90-100 billion into the financial system.

Robert Dan J. Roces, Security Bank Corp. chief economist, said on Thursday the injection will cause the peso to “face stronger depreciation pressures” given that more money is circulating in the economy.

“Sharper peso depreciation could stoke inflationary pressures,” he said, although noting that the staggered implementation seeks to arrest this tendency.

“As the RRR cuts are done in a gradual, managed nature, its end goal will be to bring down financial intermediation costs, as well as orienting monetary instruments to become more market-based, thereby leading to better credit growth that goes into capital formation and consumption.”

Apart from the cut in reserve requirement, another trader said the peso declined against the dollar as “trade conflicts between the US and China remain high.”

Reuters, citing official Chinese media, reported that China considers the US to not ne sincere in wanting to resume trade talks.

Trade tensions between the world’s two largest economies simmered anew after both countries imposed levies on each other’s goods.

The US Commerce Department also issued a rule Thursday prohibiting US companies from buying equipment from Chinese firm Huawei Technologies Co. Ltd. — Karl Angelo N. Vidal

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