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Peso to extend gains vs dollar on BSP decision

THE PESO will likely strengthen versus the dollar this week on the expected arrival of the vaccines in the country and following signals from the central bank that it would keep rates low to support the economy.

The local unit inched down to close at P48.045 per dollar on Thursday from its Wednesday finish of P48.038, data from the Bankers Association showed. Financial markets were closed on Friday for the Lunar New Year holiday.

Week on week, the peso climbed by 2.5 centavos from its P48.07-per-dollar close on Feb. 5.

The peso closed barely changed on Thursday due to market expectations that the Bangko Sentral ng Pilipinas (BSP) would maintain interest rates at record lows due to the sustained spike in inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

The central bank on Thursday kept its benchmark interest rates at their current record lows to support the Philippine economy’s recovery from the coronavirus pandemic.

In its first policy setting for the year, the Monetary Board maintained the overnight reverse repurchase rate at a record low of 2%. The lending and deposit facilities were likewise kept at 2.5% and 1.5%, respectively. The decision was announced after markets closed on Thursday.

Headline inflation reached a two-year high at 4.2% in January as prices of meat and vegetables spiked due to supply shortages.

Meanwhile, the BSP raised its average inflation forecast for the year to 4%, the upper end of its 2-4% target for the year, from 3.2% previously.

On the other hand, it lowered its inflation forecast for next year to 2.7% from 2.9% previously.

Another factor that affected the foreign exchange trading last week was the government’s ongoing retail Treasury bond (RTB) sale, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

The Bureau of the Treasury sold an initial P221.218 billion in three-year RTBs during the rate-setting auction on Feb. 9 as total bids reached P284.183 billion.

The bonds fetched a coupon rate of 2.375%, 200 bps lower than the 4.375% rate quoted for the RTBs sold in February 2020. The offering is set to run until March 4, unless closed earlier.

For this week, the peso will likely tread sideways versus the greenback as the market factors in central bank signals that its policy will remain accommodative.

Monetary Board Member Felipe M. Medalla said last Tuesday that raising the policy rate “is not in the picture” and assured the central bank has a lot of space “for very accommodative policy.”

Meanwhile, Mr. Ricafort said investors will continue to monitor developments on the delivery of coronavirus vaccines. About 117,000 doses of Pfizer vaccines are expected to reach the country within this month.

Vaccine czar Carlito G. Galvez, Jr. earlier said at least 5.6 million doses of Pfizer and AstraZeneca would arrive in the country within this quarter.

For this week, Mr. Ricafort gave a forecast range of P47.99 to P48.09 while Mr. Asuncion expects a wider trading band of P47.90 to P48.10 per dollar. — L.W.T. Noble

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