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Peso rebounds amid BSP rate hike bets

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THE PESO strengthened slightly against the dollar on Tuesday as the faster inflation print last month increased the probability of a rate hike by the Bangko Sentral ng Pilipinas (BSP).

The local currency ended yesterday’s session at P51.46 against the greenback, five centavos stronger than Monday’s P51.51-per-dollar finish.

The peso opened weaker at P51.65 against the dollar, which was also its worst showing yesterday. Its close was also its intraday high.

Dollars traded slid to $920.3 million from the $981.1 million that switched hands in the previous session.

“The peso recovered slightly [yesterday] amid mixed signals domestically and abroad,” Guian Angelo S. Dumalagan, market economist of Land Bank of the Philippines (Landbank), told BusinessWorld in an e-mail, adding that the peso initially strengthened in the morning session on the back of faster inflation print. 

Data from the Philippine Statistics Authority showed inflation in January quickened to 4%, faster than the 3.3% reading in December and the 2.7% print in the comparable year-ago period.

The January figure was also the fastest reading in more than three years or since October 2014’s 4.3%.

BSP Governor Nestor A. Espenilla, Jr. said the faster January inflation was driven by the recently passed tax reform law as well as higher food and oil prices.

Meanwhile, Mr. Dumalagan added that the faster inflation print in January “[increased] the possibility of some hawkish moves from the BSP on Thursday during its monetary policy meeting.”

“The likelihood of a tightening move at Thursday’s meeting has increased significantly,” Jose Mario I. Cuyegkeng, senior economist at ING Bank-Manila branch, also said.

However, Ruben Carlo O. Asuncion, chief economist of UnionBank of the Philippines, said: “I do not think that BSP will tweak monetary policy until first half of 2018.”

Landbank’s Mr. Dumalagan noted that the peso’s gain was, however, “partly erased by…better-than-expected US non-manufacturing data and last Friday’s upbeat US labor reports.”

In a report from Reuters, the US non-manufacturing activity index jumped 3.9 points to 59.9, the highest reading since August 2005. A print above 50 indicates expansion in the services sector, which comprise more than two-thirds of the US economy.

In addition, US created 200,000 jobs last month, higher than the market consensus of 180,000 jobs and the 148,000 jobs booked in December.

“These strong US reports increase the chances of another US rate hike next month,” Mr. Dumalagan added.

For today, UnionBank’s Mr. Asuncion sees the peso moving between P51.20 and P51.50, while Landbank’s Mr. Dumalagan said the local currency “will continue to move sideways.”

“Bets of a hawkish BSP policy meeting are expected to support the peso, but expectations of some hawkish signals from Fed Bullard and Fed Dudley may prevent any massive peso appreciation,” Mr. Dumalagan said. — Karl Angelo N. Vidal