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The PESO could fall further against the dollar this week as market participants await the Federal Reserve’s policy direction to target inflation at its annual central bank conference on Friday.
The local unit closed at 55.93 on Friday, down 4.2 centavos from Thursday’s target of 55.888 pesos, data from the Bankers Association of the Philippines showed.
The peso also depreciated 32 centavos from its close of 55.61 pesos to the dollar a week ago.
Dollars exchanged fell to $889.6 million on Friday from $939.3 million on Thursday.
The peso fell on Friday as investors appreciated hawkish signals from the Federal Reserve, the chief economist at Rizal Commercial Banking Corp said. Michael L. Ricafort in a Viber message.
On Thursday, St. Louis Fed Chairman James B. Bullard said he was leaning toward a third straight hike of 75 basis points (bp) in his Sept. 20-21 monetary policy review.
“I really don’t understand why you want to delay rate hikes until next year,” Bullard said in an interview with the Wall Street Journal.
Bullard also said he wants to bring the Federal Reserve’s interest rate to a target range of 3.75% to 4% by the end of 2022. The Fed’s policy rate is currently 2.25% – 2.50%.
Additionally, San Francisco Fed Chair Mary C. Daly said that a 50 or 75 basis point rate hike would be a “reasonable” way to keep borrowing costs “just above” 3% through the end of this year.
Speaking to CNN International, Ms Daly said the exact pace will depend on US jobs data and inflation in August.
The peso also weakened as the country’s balance of payments showed a deficit in July, Ricafort said.
The country’s balance of payments reached a $1.82 billion deficit last month, a reversal from a $642 million surplus last year. This is the largest deficit in 17 months, or since $2.019 billion in February 2021.
The July deficit is also higher than the June deficit of $1.574 billion. In the first seven months of the year, the current account deficit widened to $4.920 billion from a deficit of $1.297 billion in the same period in 2021.
BSP expects the country’s balance of payments to show a deficit of $6.3 billion this year, which is -1.5% of gross domestic product.
The dollar could appreciate this week as investors may try to get a better look at the Fed’s likely monetary policy moves in the coming months, UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion said.
Fed Chairman Jerome H. Powell is set to deliver a much-anticipated speech on the economic outlook at the annual Jackson Hole Economic Symposium in Atlanta.
Additionally, according to Asuncion, the market will take into account macroeconomic developments in China, including geopolitical tensions related to Taiwan.
At home, Mr Asuncion said investors will look for policy direction from the Philippine central bank that will continue to support the peso.
The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate on Thursday, suggesting it has scope for more rate hikes as it fights inflation.
The Monetary Board increased the overnight reverse repo rate by 50 basis points to 3.75%, as expected by 13 of 18 analysts polled by BusinessWorld.
The interest rate for overnight deposits and refinancing operations was also raised to 3.25% and 4.25% respectively.
Inflation rose 6.4% yoy in July, the fastest in almost four years, exceeding the central bank’s 2-4% target range for the fourth straight month. The average inflation rate for the first seven months is 4.7%, still below the revised GNP full-year forecast of 5.4%.
For this week, Mr. Ricafort expects the peso to trade within the P55.60 to P56.10 range, while Mr. Asuncion gave a broader forecast range of P55.60 to P56.20 for the dollar. — Keisha B. Ta-asan With Reuters