Peso advances on BSP rate hike hopes

THE PESO rose versus the dollar on Thursday as expectations of elevated Philippine inflation fanned rate hike bets.

The currency rebounded by 12 centavos to close at P61.625 versus the greenback from P61.745 on Wednesday, based on Bankers Association of the Philippines data posted on its website.

The local unit opened Thursday’s session at its record low of P61.75 per dollar, which was also its worst showing. Meanwhile, its intraday best was at P61.545 against the greenback.

Dollars traded rose to $2.015 billion from $1.89 billion on Wednesday.

“The peso appreciated on expectations of a stronger BSP (Bangko Sentral ng Pilipinas) policy response this month amid ongoing domestic price pressures,” a trader said in an e-mail.

The Philippine Statistics Authority will release May inflation data on Friday (June 5).

A BusinessWorld poll of 16 economists yielded a median estimate of 7.9% for the May consumer price index (CPI), up from 7.2% in April and 1.3% in the same month last year.

If realized, this would be the quickest pace since the 8.6% in February 2023 and would match the upper end of the BSP’s 7.1%-7.9% forecast for the month. May would also be the third month in a row that the CPI was above the central bank’s 2%-4% target for the year.

BSP Governor Eli M. Remolona, Jr. has said they are considering more aggressive policy action to help curb spiraling prices as the Middle East conflict continues to stoke inflation, including a second straight hike even before its scheduled June 18 meeting.

On April 23, the Monetary Board delivered its first increase in over two years, raising benchmark borrowing costs by 25 basis points to bring the policy rate to 4.5%.

“The peso also strengthened after the BSP cautioned banks against using foreign exchange (FX) derivatives transactions to profit from currency volatility,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP said in a memorandum that banks’ non-deliverable FX contracts must have legitimate economic purposes, warning them against “speculative positioning, directional peso exposure, or arbitrage-driven activities.”

Lower global crude oil prices also supported the currency following negotiations between Israel and Lebanon, Mr. Ricafort added.

For Friday, the trader said the peso could move between P61.50 and P61.75, depending on the May CPI outturn, while Mr. Ricafort sees it ranging from P61.55 to P61.75. — Aaron Michael C. Sy