Peso exchange stabilizes at ₱53 to $1 range

The peso vis-à-vis the US dollar steadied further and appreciated to ₱53.68 on Friday, Feb. 3, after breaching the ₱53 range the day before.

The local currency opened weaker at ₱53.93 versus Thursday’s ₱53.845 while its strongest rate was at ₱53.63 on Friday.

Based on Bankers Association of the Philippines data, the exchange rate’s weighted average was at ₱53.772 versus the previous trading of ₱53.995. The spot market volume dropped to $1.165 billion from $1.620 billion.

The market is expecting the peso-US dollar trading to stabilize at current level ahead of the Feb. 16 Monetary Board policy meeting wherein the Bangko Sentral ng Pilipinas (BSP) is seen to raise the key rate by at least 25 basis points (bps).

BSP Governor Felipe M. Medalla has already signalled to the market that the BSP will raise the policy rate during the first two policy meetings this quarter. The first expected 25 bps is this month and the next is on March 23, to ensure inflation expectations are properly anchored.

Security Bank Corp. senior economist, Robert Dan Roces, said Friday in a commentary that they expect BSP to only raise the key rate by 25 bps this month because the peso has “behaved”.

“With policy differentials mattering less now given that the peso is ‘behaved,’ and inflation on a likely downward trajectory, the BSP might probably opt not to follow the US Fed if it hikes by 25 bps beyond 5% as signaled by Fed Chair Jerome Powell, should the latter’s forward guidance mean a long pause as well. Headwinds include another round of wage increases and volatility in global commodity prices,” said Roces.

Roces projects inflation for the month of January to drop to 7.7 percent from 8.1 percent in December 2022.

He said inflation “is expected to begin tempering by 2Q23 mostly on base effects, a post-holiday consumption slowdown, and a stable peso.”

“With these and good growth figures, we can expect the central bank to downshift its hike pace to 25bps at each of its next two meetings to bring the RRP to 6%, followed by a pause,” Roces added. The central bank raised the policy rates by a cumulative 350 bps in 2022 to ensure inflation will return to within the government target band of two percent to four percent this year.