Peso may depreciate ahead of May polls
THE PESO may depreciate versus the greenback this week due to the upcoming national elections.
The local unit closed at P52.315 per dollar on Friday, gaining by five centavos from its P52.365 finish on Thursday, based on Bankers Association of the Philippines data.
However, it weakened by 28.5 centavos from its P52.03 close on April 13.
The peso’s weakest showing on Friday was at P52.45 versus the dollar, while its intraday best was at P52.215 against the greenback.
Dollars exchanged dropped to $1.283 billion on Friday from $1.344 billion on Thursday.
The decline in global oil prices boosted the peso on Friday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
Reuters reported that oil prices dropped by nearly 5% on Friday from their levels a week earlier, with the market pricing in prospects of slower global growth, higher interest rates, as well as the impact of the lockdowns in China to demand.
Price of Brent crude dropped by 1.6% or $1.68 to $106.65 a barrel on Friday, while the US West Texas Intermediate crude decreased by $1.72 or 1.7% to $102.07.
The International Monetary Fund on Tuesday slashed its global growth forecast for this year by 0.8 percentage point to 3.6% as it factored in the impact of the war between Russia and Ukraine while economies have yet to fully recover from the pandemic.
Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the market also factored in hawkish signals from the US Federal Reserve ahead of its May 3-4 policy review.
San Francisco Federal Reserve President Mary Daly on Wednesday said she is backing a broad consensus to increase interest rates to about 2.5% by the end of 2022, Reuters reported.
“Once accommodation is removed, we need to evaluate the effects — observe how financial conditions adjust, how much inflation recedes, and what more remains to be done to ensure a sustained expansion,” Ms. Daly said.
The Fed hiked rates by a quarter percentage point in its March review to start its tightening cycle to quell surging inflation.
For this week, Mr. Asuncion said the peso may continue to weaken versus the greenback due to uncertainties usually associated with election cycles.
Meanwhile, Mr. Ricafort said the next two weeks leading to the polls could lead to increased election-related spending that could partly be financed by funds from abroad.
Former Senator Ferdinand R. Marcos, Jr., the son of the late dictator, is still the survey frontrunner for the presidential elections. His closest rival in the race, Vice-President Leonor G. Robredo, seems to be the market’s preference, based on a Bloomberg poll of analysts and investors.
The market will also continue to watch the unfolding events on the war in Ukraine, Mr. Asuncion said, noting this could lead to safe-haven demand for the dollar.
Russian news agencies reported that Moscow is eyeing to take full control of Donbas and the southern part of Ukraine during the second phase of what it calls a “special military operation.” The war has dragged on for two months, with both sides still not backing down. —