Market News
Philippine Peso Sentiment on Upswing as Rate Cut Prospects Fade - REUTERS
BY David Finnerty and Catherine Bosley
(Bloomberg) -- The Philippine peso is set to extend gains after an unexpected pickup in inflation damped the possibility of a an interest-rate cut this week.
The peso, which closed at 57.28 per dollar on Friday, has rallied 2.8% after falling to the lowest in more than two years in June. Rizal Commercial Banking Corp. expects the peso to advance to as high as 56.5 per dollar by the end of the year.
The forecast mark a sea change for a currency that officials were defending with interventions just a few weeks ago. That’s mostly because inflation unexpectedly picked up in July, prompting the Bangko Sentral ng Pilipinas to signal it’s less likely to lower its benchmark rate on Aug. 15.
“The worst is over for the peso and we expect some more strengthening by the end of the year,” said Michael Ricafort, chief economist at Rizal Commercial Banking in Manila. “Any rate cut by the BSP will not be aggressive and that will help support the peso, especially as the Fed may cut more.”
Peso was the second best performer versus the dollar and the yen among Asian currencies last week amid recent gyrations in the dollar and the unwinding of carry trades funded by the yen.
“We see that the PHP could get some support from the possibility of the BSP delaying the timing of its rate cut,” said Alan Lau, a currency strategist at Malayan Banking Bhd.
The Philippine currency was also supported as economic momentum gathered pace in the second quarter, data on Thursday showed, which Blooomberg Economics said buttresses the case to keep interest rates on hold at its scheduled meeting.
The BSP is now “little bit less likely” to cut rates on Thursday, Governor Eli Remolona said in response to the inflation print. However, Finance Secretary Ralph Recto said last week he sees about 50 basis points cut in central bank’s key rate this year.
“We see a stronger peso on the technical side, with resistance at 57.80” per dollar, said Helen Go Oleta, a fund manager at RCBC Trust Corp. Given the nation imports goods such as oil and rice, for local companies that are “buyers of dollars — that would be good for them.”
Next week’s main economic events:
Monday, Aug. 12: RBA Deputy Governor Andrew Hauser speaks, India CPI and industrial production
Tuesday, Aug. 13: Australia consumer confidence and 2Q wage price index
Wednesday, Aug. 14: RBNZ rate decision
Thursday, Aug. 15: BSP rate decision, Australia unemployment, Japan 2Q GDP, China 1-year MLF, retail sales, industrial production and fixed assets ex-rural, Indonesia trade balance
Friday, Aug. 16: Taiwan 2Q GDP, Singapore non-oil domestic exports, Malaysia 2Q GDP
--With assistance from Matthew Burgess, Ditas Lopez and Marcus Wong.
