Peso weakness seen easing after US Fed decision

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The Bangko Sentral ng Pilipinas (BSP) expects the weakness of the Philippine peso to ease following the decision of the United States Federal Reserve to keep its policy rates unchanged.

An analyst shared the same view but noted investor sentiment must improve to further support the peso.

“The Fed’s holding off further action shows it can be a little bit more patient,” BSP Governor Amando Tetangco Jr. told reporters in a text message on Thursday.

The Fed kept rates unchanged but hinted a rate hike is likely in the latter part of the year, provided that the economy stays on course after the policy-setting Federal Open Market Committee (FOMC) meeting on Wednesday (Thursday in Manila).

“For our markets, this may mean that we could possibly see some slowing in the weakness of the peso in the near term until the next Fed meeting again,” Tetangco said.

The peso dropped to its weakest level in eight months against the dollar on Monday, closing P47.89:$1.

The BSP chief said the recent weakness in the peso was caused by external and sociopolitical factors.

Tetangco noted that in the last two weeks the European Central Bank, Bank of Japan and the Fed held policy meetings. It was a normal reaction that in the run up to these meetings, volatility becomes more pronounced and markets turn defensive and go for profit-taking to protect their positions.

“There are also sociopolitical factors. But . . . it is important to remember that the economy has sound macroeconomic fundamentals that have been built on strong institutions,” he said.

He pointed out that the BSP is following a flexible exchange rate policy where the rate is allowed to be broadly determined by the market, but official action may be taken if volatility is excessive.

Bank of the Philippine Islands associate economist Nicholas Antonio Mapa shared the same view.

“Yes, the Fed delay is seen to slow the weakness of the peso in the near term. We’ve had 20 straight days of foreign outflows from the PSEi, although foreign outflow is normal during times of uncertainty. Hopefully, the decision by the Fed can reverse this,” he said.

“If we can right the ship and investor sentiment improves, the peso depreciation trend may be alleviated until the Fed is set to decide on policy again,” he added.

Consistent with these views, the peso strengthened slightly on Thursday against the US dollar. The local currency rose to P47.83 to $1, gaining 6 centavos from P47.89 on Wednesday.

The peso opened stronger at P47.73 to $1 on the Philippine Dealing System (PDS) before trading between P47.70 and P47.90. Total volume fell to P502 million from P701 million in the previous session.

 

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