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Peso may strengthen vs dollar on inflows, budget enactment

THE PESO could appreciate against the greenback this week on the back of holiday flows and optimism on the timely passage of the 2021 budget.

The local unit finished trading at P48.085 versus the dollar on Friday, losing four centavos from its P48.045 close on Thursday, data from the Bankers Association of the Philippines showed.

It also weakened by 1.5 centavos from its P48.07-per-dollar close on Dec. 11.

The peso depreciated versus the dollar after faster inflation forecasts from the Bangko Sentral ng Pilipinas (BSP), which caused risk-off sentiment among investors, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

Benchmark interest rates were maintained by the central bank at its last policy meeting on Thursday, as expected. However, the inflation forecasts for 2020 and 2021 were revised upward to 2.6% (from 2.5%) and 3.2% (from 2.7%), respectively.

BSP Deputy Governor Francisco G. Dakila, Jr. said they factored in the quicker increase in food prices and the recent uptick in global oil prices for the revised forecasts.

Headline inflation in November picked up to 3.3%, quicker than the 2.5% in October and the 1.3% a year ago. This is also the fastest in 21 months or since the 3.8% logged in February last year.

For this week, Mr. Ricafort said the market will closely watch budget developments, which will impact foreign exchange trading.

“Major catalysts include President [Rodrigo R.] Duterte’s final approval of the 2021 national budget expected on or before Christmas as well as the extension of the 2020 national budget validity,” he said in a text message.

Next year’s P4.5-trillion national budget has been transmitted to the Palace and is awaiting Mr. Duterte’s signature.

Meanwhile, external developments including the progress of a US fiscal passage paired with seasonal currency flows will also be the theme of trading this week, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

Legislators in the US worked over the weekend to finish discussions on a $900-billion pandemic response package, Reuters reported. The Senate held an unusual weekend session in a bid to settle the package, which, if passed, will be the biggest since the relief deals worth $4 trillion legislated in the early weeks of the pandemic.

Among settled issues so far is the inclusion of a one-off $600 cheques for most Americans, unemployment benefits worth $300 a week, help for state distribution of vaccines as well as assistance for small firms.

For this week, Mr. Ricafort gave a forecast range of P47.95 to P48.15 while Mr. Asuncion expects a tighter trading band of P48.00 to P48.10 per dollar. — L.W.T. Noble with Reuters

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