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Peso to strengthen before BSP review

peso to strengthen before bsp review 816x445 - Peso to strengthen before BSP review

THE PESO is poised to strengthen further this week as central banks around the world continue to ease monetary policy, with the Bangko Sentral ng Pilipinas (BSP) expected to follow suit in its review this week.

The local unit ended at P51.96 per dollar on Friday, strengthening by 22 centavos from its P52.18 close against the greenback the previous day.

Week on week, however, the peso was weaker versus its P51.91-per-dollar finish last Sept. 13.

Dollars traded on Friday climbed to $1.144 billion from the $1.114 billion recorded on Thursday.

“The peso appreciation may have been the offshoot from the slew of monetary policy decisions [last] week from various central banks, particularly from the policy rate cut by the US [Federal Reserve]. Moreover, this may also be from the anticipation of an almost certain 25 bps (basis points) rate cited by the BSP this coming Thursday,” UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion said in an email.

“The strength is a result of the monetary policy easing bias not just from the BSP but also from the US central bank as well. Emerging market currencies like the Philippine peso are usually favored when easing expectations are high,” Mr. Asuncion said.

The Federal Reserve cut interest rates again on Wednesday to help sustain a record-long economic expansion but signaled a higher bar to further reductions in borrowing costs, eliciting a fast and sharp rebuke from US President Donald Trump.

The Fed lowered its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.75% to 2%. It was the second Fed rate cut this year.

Describing the US economic outlook as “favorable,” Fed Chair Jerome Powell said the rate cut was designed “to provide insurance against ongoing risks” including weak global growth and resurgent trade tensions.

Meanwhile, BSP Governor Benjamin E. Diokno earlier said the central bank’s plan to cut rates again “won’t reach November.”

The central bank’s Monetary Board holds policy-setting meetings every six weeks. Its remaining reviews for the year are scheduled on Sept. 26, Nov. 14 and Dec. 12.

The BSP has cut rates by a total of 50 bps this year — by 25 bps each last May 9 and Aug. 8 — to 4.25% for the overnight reverse repurchase rate, 4.75% for overnight lending and 3.75% for overnight deposit.

“The peso continued to strengthen versus the US dollar to the strongest in more than a week…after continued decline in US money markets rates/repo rates and US government/Treasury bond yields, a day after the 0.25-bp Fed rate cut. As a result, lower US interest rates resulted to weaker US dollar versus major global/Asian currencies, including the peso,” Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said in a separate email.

Mr. Ricafort said for this week, aside from the expected BSP rate cut, the peso will be supported by cooling oil prices.

“Major catalysts for the coming week [are] global oil prices which already eased from highs with the expected full resumption of Saudi oil production after last week’s drone attacks on Saudi’s major oil facilities, possible 0.25-bp BSP rate cut on September 26 after the widely expected 0.25-bp Fed rate cut…and renewed uncertainties on US-China trade war,” he said.

Mr. Ricafort expects the peso to trade at around P51.70-P52.20 against the dollar, with UnionBank’s Mr. Asuncion said the local unit could move within the P51.70-P52 band. — L.W.T. Noble with Reuters

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