The PESO could rebound against the greenback this week on bets of more aggressive tightening by the Bangko Sentral ng Pilipinas (BSP) as headline inflation likely hit a more than three-year high in June.
The local unit closed at 55.09 pesos to the dollar on Friday, losing 11.5 centavos from its finish of 54.975 pesos on Thursday, based on data from the Philippine Bankers Association.
It was the worst performance for the peso in more than 16 years, since it closed at 55.26 pesos per dollar on October 25, 2005.
The local unit also weakened 10.5 centavos from its close of P54.985 a week earlier.
The peso fell again on Friday amid recession fears due to the U.S. Federal Reserve’s hawkish stance, the chief economist at Rizal Commercial Banking Corp said. Michael L. Ricafort.
Last month, the Fed raised its benchmark rates by 75 basis points (bps) to temper rising prices. Markets are pricing in another 75 basis point hike at the July meeting of the US central bank, with several Fed officials saying they would support more aggressive hikes.
Fed Chairman Jerome H. Powell told a US Congressional hearing late last month that the US central bank was committed to reducing inflation despite downside risks, but said that she was not trying to cause a recession.
Weak foreign portfolio investment data also drove the peso lower, Ricafort said.
Foreign portfolio investment, also known as “hot money” because of the ease with which such funds move in and out of an economy, generated a net outflow of $270.42 million in May compared to net inflow of $1.36 billion recorded the previous month, BSP data released on Friday showed.
In the first five months, net inflows of speculative capital reached $1.07 billion, a reversal from the net outflows of $420.7 million observed in the same period last year. BSP expects foreign portfolio investment to generate a net inflow of $4.5 billion for 2022.
For this week, expectations of an aggressive hike by the BSP at its meeting next month, as headline inflation likely picked up further in June, could provide support for the peso, the chief economist said. of the UnionBank of the Philippines, Inc. Ruben Carlo O. Asuncion in an e-mail.
BSP Governor Felipe M. Medalla said last week that the central bank may consider a more aggressive rate hike at its Aug. 18 meeting if inflation maintains its upward momentum, but noted that the decision would remain dependent on the data.
In early June, ahead of the Fed’s decision to raise rates by 75 basis points at its own meeting that month, Medalla said he did not want to raise borrowing costs more than 25 basis points. basis points per meeting.
On June 23, the BSP raised benchmark interest rates by 25 basis points for a second straight meeting to cool rising prices. At the meeting, he raised his average inflation forecast for this year to 5% from 4.6% previously, well above his target of 2-4%.
A Business world a poll of 16 analysts last week gave a median estimate of 6% for June inflation, down from the 5.7-6.5% forecast given by the BSP last week.
If realized, this would be well above BSP’s 2-4% target and 5% projection for the year.
In May, headline inflation stood at 5.4%, fueled by rising food and transport prices.
The Philippine Statistics Authority will release its June Consumer Price Index report on Tuesday, July 5.
Mr. Asuncion added that mixed data from the United States last week could also support the peso.
Disposable income fell slightly, consumer spending slowed, inflation remained elevated and jobless claims rose slightly, Reuters reported.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.2% in May, the weakest rise in five months.
Meanwhile, the personal consumption expenditure (PCE) price index rose 0.6% last month after gaining 0.2% in April. In the 12 months to May, the PCE price index climbed 6.3% after a similar gain in April. It was stimulated by the rise in the prices of goods and services.
Excluding the volatile food and energy components, the PCE price index rose 0.3% for the fourth consecutive month. The PCE core price index rose 4.7% year-on-year in May, the smallest increase since last November, after rising 4.9% in April.
PCE price indices are the Fed’s preferred measure for its 2% inflation target.
For this week, Mr Asuncion expects the peso to trade from P54.70 to P55.20 to the dollar, while RCBC’s Ricafort gave a forecast range of P54.70 at 55.25 P. — KB Ta-asan with Reuters