July 17, 2019
THE peso recorded its strongest level yet against the US dollar this year as the expected easing of the Bangko Sentral ng Pilipinas’ (BSP) monetary policy and other positive indicators helped the local currency return to P50:$1 on Tuesday.
The currency, which opened at P51 against the greenback, gained 10 centavos to close at P50.90, its strongest in nearly 18 months or since its P50.84:$1 finish on Jan. 26, 2018.
“Possible easing of local monetary policy by way of a cut in key policy rates as early as the next monetary policy-setting meeting on Aug. 8, 2019, amid [the] continued easing-inflation trend and [a] possible cut in the US Fed (Federal Reserve) funds rate as early as July 31, 2019…recently supported sentiment on the local financial markets, including the peso,” Rizal Commercial Banking Corp. economist Michael Ricafort said.
Earlier, BSP Governor Benjamin Diokno said an expected interest rate cut in the United States would give the central bank more space to ease its monetary policy settings in the third quarter.
The BSP started easing its monetary policy settings on May 9, but decided to take a “prudent pause” on June 20 by keeping its overnight borrowing, lending and deposit rates at 4.5 percent, 5 percent and 4 percent, respectively.
Despite the pause, monetary authorities cut their 2019 inflation forecast to 2.7 percent from 2.9 percent, and their 2020 projection to 3 percent from 3.1 percent.
“The flurry of recent economic releases, such as OFW (overseas Filipino worker) remittances and low domestic inflation is also driving this strength,” Union Bank of the Philippines chief economist Carlo Asuncion said.
The BSP reported on Monday that personal remittances reached $2.896 billion in the month, 5.5 percent higher than $2.746 billion a year ago and 6.7 percent higher than $2.713 billion in April.
The amount was the highest posted since December 2018’s $3.157 billion.
Headline inflation, meanwhile, dropped to 2.7 percent in June from 3.2 percent in May.
Going forward, ING Bank Manila senior economist Nicholas Antonio Mapa said the strengthening trend for the peso could continue, but it depended on the direction and pace of foreign investor flows.
“Strong economic performance could get investors believing in the economic prospects of the Philippine once again,” Mapa said.
“However, any deviation in global market sentiment (resumption of concerns on global growth or disappointment from the Fed) could stall this rally or even cause the market to move the opposite direction,” he added.
Last year, the peso ended at P52.58 versus the dollar, sharply down from its 2017 close of P49.93:$1.
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