Peso may weaken on Fed hike bets

JULIAN PAOLO DAYAG-UNSPLASH

THE PESO may weaken further this week as faster-than-expected September US consumer inflation fueled market expectations of another big rate hike from the US Federal Reserve next month.

The local unit closed at P58.935 per dollar on Friday, gaining 6.5 centavos from its P59 finish on Thursday, based on Bankers Association of the Philippines data.

Week on week, the peso weakened by 1.5 centavos from its P58.92 close on Oct. 7.

The peso opened Friday’s session at P58.97 per dollar. Its weakest showing was at P58.985, while its intraday best was at P58.88 versus the greenback.

Dollars exchanged went up to $542.8 million on Friday from $524.08 million on Thursday.

The peso rebounded on Friday after the Philippine central bank governor hinted at another large rate hike at their meeting next month amid growing inflation pressures, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said the central bank will consider another big rate hike at their Nov. 17 meeting to support the peso as its depreciation adds to inflation risks.

Mr. Medalla said in a Bloomberg Television interview that they will look at a 50-basis-point (bp) or 75-bp increase next month, with the peso’s decline against a robust dollar adding to price pressures as it drives up import costs.

The Monetary Board delivered a second straight 50-bp rate hike last month, bringing increases for the year so far to 225 bps since May.

Headline inflation accelerated to 6.9% in September, from 6.3% in August and 4.2% in September 2021. It was the fastest in more than 13 years or since the 7.2% in February 2009.

For the year so far, inflation averaged 5.1% from January to September, above the BSP’s 2-4% target but below its 5.6% forecast for 2022.

“The peso also stronger after Department of Finance Secretary [Benjamin E.] Diokno signaled plans by the Marcos administration to extend the lower tariff rates on key commodities… as part of the government’s effort to curb higher prices/inflation especially on food,” Mr. Ricafort said.

For this week, the peso may weaken as faster-than-expected US consumer inflation in September cemented expectations of another big rate increase from the Fed at their Nov. 1-2 meeting, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

Still, the peso may stay at the P59-a-dollar level as the central bank tries to stabilize volatility in the foreign exchange market, he added.

The US consumer price index stood at 8.2% in September, easing from 8.3% in August. Month on month, inflation rose 0.4% in September after gaining 0.1% in August.

The Fed fired off a third straight 75-bp hike last month and has raised borrowing costs by 300 bps since March.

For this week, Mr. Ricafort gave a forecast range of P58.60 to P59, while Mr. Asuncion expects the peso to move from P58.70 to P59.20 versus the dollar. — Keisha B. Ta-asan