September 19, 2022

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Peso strengthens on balance of payments data, lower oil prices

THE PESO strengthened versus the dollar on Monday, amid the narrower balance of payments (BoP) deficit in August and lower oil prices.

The local unit closed at P57.40 against the greenback on Monday, stronger by three centavos from its P57.43 finish on Friday, data from the Bankers Association of the Philippines showed.

The peso opened Monday’s session at P57.34 per dollar. Its intraday low was at P57.43 while its strongest showing was at P57.325 against the greenback.

Dollars traded went down to $508.4 million on Monday from $900.66 million on Friday.

The peso strengthened on Monday after the latest BoP deficit data that eased month on month, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

The country’s BoP position remained in a deficit for a fifth straight month in August, mainly due to the National Government’s foreign debt payments, the central bank said on Monday.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Monday showed the BoP deficit hit $572 million in August, a turnaround from the $1-billion surplus in the same month last year.

However, this is the lowest deficit posted in four months or since $415 million in April. The deficit is also lower than the $1.819-billion gap in July.

Mr. Ricafort also attributed the peso’s strength to lower global oil prices.

“The peso appreciated, tracking the decline in global oil prices amid increasing global recession worries,” a said in an e-mail.

Reuters reported that global oil prices fell by more than 1% on Monday, pressured by expectations of weaker global demand and by the dollar strength ahead of a possible large interest rate increase from the US Federal Reserve.

Brent crude for November delivery fell $1.17, or 1.3%, to $90.18 by 0822 GMT. US West Texas Intermediate for October dropped $1.14, or 1.3%, to $83.97.

Oil has soared in 2022, with Brent coming close to its all-time high of $147 in March after Russia’s invasion of Ukraine exacerbated supply concerns. Worries about weaker economic growth and demand have since pushed prices lower.

“The local currency might weaken due to expectations of a substantial US policy rate hike from the Federal Reserve,” the trader said.

To control stubborn inflation, central banks globally are widely expected to increase borrowing costs this week. The US Federal Reserve might also deliver a full percentage point at its Sept. 20-21 meeting.

Back home, the BSP is likely to continue its rate hike cycle on Thursday, with several analysts forecasting a 50-basis-point (bp) increase.

A BusinessWorld poll last week showed 14 out of 15 analysts expect the Monetary Board to raise its benchmark interest rate at its Sept. 22 meeting.

Eleven analysts believe the central bank will deliver a hike of 50 bps, while two analysts see a 25-bp increase. One analyst expects a 75-bp hike, while another sees the BSP keeping rates unchanged.

For Tuesday, Mr. Ricafort gave a forecast range of P57.25 to P57.45 while the trader expects the peso to move around the P57.30 to P57.50 levels versus the dollar. — Keisha B. Ta-asan with Reuters