Peso seen tracking oil, US yields, BSP tone
The Philippine peso is expected to remain sensitive this week to oil prices, rising US Treasury yields and central bank rhetoric, MUFG Global Markets Research said, as the prolonged war in the Middle East continues to expose country-specific vulnerabilities across Asia.
“For the week ahead, the peso will likely remain more sensitive to oil prices, US yields and Bangko Sentral ng Pilipinas (BSP) rhetoric than to domestic growth data,” MUFG said in a note to clients.
“If oil remains elevated and US dollar strength persists, peso-dollar risks staying near the upper end of the recent range, although the BSP’s hawkish pivot should reduce the risk of a disorderly move,” it added.
Last week, the peso weakened to a record-low closing of 61.75, as rising US Treasury yields amid mounting expectations of interest-rate increases from major central banks drove the greenback’s strength.
As it is, a weaker peso brings mixed effects.
Remittances from overseas Filipino workers stretch further in peso terms, supporting consumption, while exporters gain price competitiveness.
But the slide risks stoking imported inflation and raising the peso cost of servicing foreign-currency debt.
The depreciation came despite the decision of the BSP last month to raise its key rate by a quarter point to 4.5 percent, the first tightening move in more than two years.
Inflation
BSP Governor Eli Remolona Jr. sees risk that the central bank may already be “behind the curve” despite its early tightening moves to choke off war-driven inflation, adding that policymakers are “considering” an off-cycle interest rate hike.
On the continued weakness of the peso, Remolona said that while the depreciation could fuel inflation, it could also boost Philippine exports and help narrow the country’s trade deficit.
He also reiterated that the central bank does not target a specific level and will allow market forces to determine the value of the currency.
“The currency has weakened materially since early May, when peso-dollar was closer to 60.5–61.0, reflecting the same broad mix of oil-price pressure, US dollar strength and Asia foreign exchange risk-off dynamics,” MUFG said. “The domestic macro backdrop has turned less supportive.”
