Patient Fed seen capping peso’s strength at 56:$1
The Philippine peso could end the year at the 56-level, as the local currency’s current strength could be capped by possible delays in the US Federal Reserve’s easing moves amid global trade uncertainties, Bank of America (BofA) said.
Vince Valdepeñas, the bank’s Philippine country head, told the Inquirer that BofA’s view was for the Bangko Sentral ng Pilipinas (BSP) to proceed with its rate-cutting cycle while the Fed would likely stand pat. This, as the US central bank is expected to stay patient in the face of President Donald Trump’s tariffs, which may stoke inflation stateside.
Such a development, Valdepeñas said, could weigh on the peso. The local currency is currently trading within the 55-territory, stronger than the 56 to 58 foreign exchange assumption of the Marcos administration for the year. The appreciation is happening while the US dollar is having one of its worst years amid the unprecedented uncertainties coming from Trump’s tariffs on America’s major trading partners.
“I think there’s still some upside for the peso. But the main reason why we’re doing that [forecast] is because the BSP is going to cut,” he said.
“Some are projecting as much as another 75 basis points [local policy rate] cut. Our forecast is only 50 basis points cut. One in June, one in August,” he added.
Data showed the consumer price index, which measures the average change in prices that consumers pay for a basket of essential goods and services, rose 1.3 percent year-on-year last month, slightly below the annual increase of 1.4 percent in April.
Two more rate cuts
As it is, another month of benign inflation would support the ongoing easing cycle of the central bank, which has so far lowered the benchmark rate that banks typically use as a guide when pricing their loans by 100 basis points (or 1 percentage point) to 5.5 percent. BSP Governor Eli Remolona Jr. had said there was “plenty of room” to reduce borrowing costs, adding that at least two more rate cuts were likely on the table this year.
The Monetary Board will meet again on June 19 to decide on policy settings, a task that has become more complicated than ever amid the global trade fiasco.
In the same interview, BofA’s Valdepeñas said the bearish dollar has been pushing up the demand for hedging tools. BofA relaunched its fixed-income, currencies and commodities services in the country late last year to meet the demand from institutional clients, especially multinational corporations.
“We see a lot of interest in hedging given the big movement on the dollar,” he said. “If there is volatility in the market, our clients need us more.”
