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Peso falls vs US dollar after BSP rate hike

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THE peso dropped against the dollar on Friday following the “dovish” remarks from the Bangko Sentral ng Pilipinas (BSP), which raised interest rates for the first time in nearly four years.

The peso closed the session at P52.19, dipping 39 centavos from the P51.80-per-dollar finish.

The peso traded weaker the whole day, opening the session at P51.95. It fell to as low as P52.21, while its intraday high stood at P51.90.

Dollars traded soared to $1.13 billion from Thursday’s $807.4 million.

“The peso moved significantly higher [on Friday],” a trader said in a phone interview. “With the BSP’s rate hike [on Thursday], the move supposed to be supportive of the peso. But what happened was the opposite.”

The Monetary Board raised its borrowing costs by 25 basis points (bp) during their third review for the year. Rates now stand at 3.75% for the overnight lending rate, 3.25% for the overnight reverse repurchase rate, and 2.75% for the overnight deposit rate.

Another trader attributed the weakness of the peso to the remarks from the central bank about another rate hike.

“The peso weakness was due to the statement from the BSP saying that there won’t be another hike this year,” the trader said over the phone.

BSP Deputy Governor Diwa C. Guinigundo had said that the 25 basis point hike will be sufficient to temper the rising inflation.

“In terms of moving again the interest rate, I think at this point…the 25bp increase, I think, is sufficient to keep the inflation reading at 3.4% for 2019,” Mr. Guinigundo said. “In short, we’re back to target-consistent path.”

“The reading of the market about the remarks was that the BSP is still dovish,” the trader added in a mix of English and Filipino.

“The peso weakness came maybe from expectations of more BSP rate hikes this year. However, I do not see this happening,” Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said in a text message.

The BSP will hold its next rate-setting meeting on June 21.

Meanwhile, the second trader added that the peso weakness was also “aggravated by the dollar correction as it weakened due to lower-than-expected US inflation reading.”

In a Reuters report, US consumer prices rebounded less than expected in April. The Labor Department said Thursday its consumer price index rose 0.2% after slipping 0.1% in March. This was lower than the 0.3% growth as expected by economists. — Karl Angelo N. Vidal