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Peso surges as Fed cuts rates amid COVID-19 fears

peso surges as fed cuts rates amid covid 19 fears - Peso surges as Fed cuts rates amid COVID-19 fears

THE PESO surged against the dollar on Wednesday after the surprise rate cut from the US Federal Reserve and dovish signals from the Bangko Sentral ng Pilipinas (BSP).

The local unit ended trading at P50.551 versus the dollar yesterday, strengthening by 13.9 centavos from its Tuesday close of P50.69.

The currency opened the session at P50.68 per dollar. It sank to as low as P50.73, while its intraday best was at P50.54 versus the greenback.

Dollars traded slipped to $1.187 billion on Wednesday from $1.239 billion.

A trader attributed the peso’s rebound to the Fed’s move to cut borrowing costs.

“The peso strengthened after the US Federal Reserve unexpectedly cut policy interest rates by 50 basis points in an emergency decision overnight,” the trader said in an e-mail.

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion attributed the peso’s strength to recent dovish remarks from the BSP chief.

“The peso strengthened as the BSP stressed its readiness to boost market confidence and economic growth amidst the COVID-19 (coronavirus outbreak) epidemic…,” Mr. Asuncion said in a text message.

The US central bank slashed its key rates by 50 basis points (bps) in a surprise move to temper economic risks that could arise from the coronavirus outbreak.

Meanwhile, BSP Governor Benjamin E. Diokno said earlier this week another 25-bp cut is on the table this year, adding that they will assess anew the impact of the virus on the economy during the Monetary Board’s policy-setting meeting on March 19. Last week, he also said the central bank is not ruling out cuts worth 50 to 75 bps this year.

The Monetary Board slashed benchmark rates by 25 bps on Feb. 6 as a preemptive move to cushion the country from the impact of COVID-19.

The rates on the BSP’s overnight deposit, overnight reverse repurchase, and overnight lending facilities currently stand at 3.25%, 3.75% and 4.25%, respectively.

In 2019, the central bank cut key policy rates by a total of 75 bps. This means the BSP has already unwound 100 bps from the 175 bps worth of rate hikes done in 2018 to quell multi-year high inflation.

For today, the trader expects the peso to end at around P50.50 to P50.70 against the greenback, while Mr. Asuncion sees the peso playing around the P50.40-P50.70 levels. — Luz Wendy T. Noble

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