Peso support at P58 seen holding as BSP pushes back

THE PHILIPPINES’ latest line in the sand for the peso appears to have settled halfway between its previous two, with P58 per dollar the new level to defend for the central bank.

The currency is just shy of that level after its slump to a 17-month low last month. The plunge prompted Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. to warn that authorities stand ready to manage any unnecessary movement and excessive volatility in the currency.

“As BSP alluded, they’ll be intervening at the P58 level and they have a proven record in successfully defending the peso in the past,” said Robert Dan J. Roces, chief economist at Security Bank

Corp. in Manila. “Their recent comments drew a line in the sand and that is supporting the peso.”

The peso slumped to P57.96 per dollar in April, the weakest since November 2022, as receding US Federal Reserve interest rate cut bets for this year wreaked havoc across emerging market currencies. Tensions in the Middle East and rising oil prices also added to the selling pressure.

With the central bank’s policy rate already at a 17-year high and its hawkish stance to curb inflation, the monetary authority is seen to be relying on verbal warnings for now to manage the peso.

The BSP in the past has adopted a strategy of defining the limit of its tolerance for currency weakness. It succeeded in capping the peso’s drop at the record-low level of P59 in late 2022. Officials had also signaled they were intervening to defend the peso at the P57-per-dollar level in September.

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Nomura Holdings, Inc. late last month took profit on its recommendation to sell the peso, citing the step up in the BSP’s rhetoric against depreciation.

“BSP is one of the few central banks in the Asia ex-Japan region that has ample FX (foreign exchange) reserves to stabilize peso for a prolonged period (if there is a desire),” analysts including Craig Chan wrote in a note.

Philippine forex reserves totaled $104.1 billion in March, the highest since April 2022. Data due this week are expected to show growth picked up in the first quarter, which would provide another tailwind for the peso.

The peso may rise to as high as P56.50 per dollar by the end of the second quarter, according to Security Bank. Rizal Commercial Banking Corp. (RCBC) sees the currency trading at P56 to P57.

The currency closed at P57.35 per dollar on Friday. It was emerging Asia’s worst-performing currency in April with a loss of 2.7% against the dollar. —