Peso at P51:$1 on lower inflation expectations

Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Mon, 03 Jun 2019 16:26:58 +0000

THE peso returned to the P51:$1 level on Monday, hitting a one-month high, on expectations of a slower inflation rate last month.

The currency, which opened at P52.15 against the greenback, gained 25 centavos to close at P51.91, its highest since its P51.86:$1 finish on May 7.

“Investors are probably anticipating the positive impact of a slower May inflation, signaling more support for more monetary easing in the next coming months,” Union Bank of the Philippines chief economist Carlo Asuncion said in a comment.

 A man counts peso bills at a money changer in Manila. PHOTO BY J. GERARD SEGUIA

“This particular driver may have resonated more [with] investors than the protracted trade issues between US and China, and more recently, between the US and its neighbor Mexico…” he added.
Earlier, the Bangko Sentral ng Pilipinas said inflation likely eased to as low as 2.8 percent or picked up to 3.6 percent in May on the back of the jeepney fare adjustment in Central Visayas and higher prices of selected food items amid lower rice and domestic oil prices, and the downward adjustment in electricity rates.

Analysts’ forecasts, on the other hand, ranged from 2.7 percent to 3.1 percent with a 2.9 percent average.

Following a series of rate hikes last year, monetary authorities reduced the central bank’s overnight borrowing, lending and deposit rates by 25 basis points to 4.50 percent, 5 percent and 4 percent, respectively, on May 9.

Asuncion’s comment came after China hit $60 billion worth of US goods with new punitive tariffs ranging from 5 to 25 percent, in retaliation after Washington raised duty on $200 billion in Chinese goods to 25 percent.

US President Donald Trump launched the trade war last year in a bid to reduce the US trade deficit with China and force Beijing to undertake economic reforms, accusing it of seeking to dominate global industries with unfair state subsidies and of acquiring American technology through theft or forced transfers.

Since then, the world’s two largest economics have exchanged tit-for-tat tariffs on two-way trade worth hundreds of billions of dollars.

It also came after Washington said last Thursday it would impose a 5-percent tariff on all goods from Mexico — increasing to as much as 25 percent — until what Trump described as illegal immigrants stop coming through the country into America.

That tariff will take effect on June 10, and it will be raised to 10 percent on July 1 and increased by 5 percent monthly until it reaches 25 percent on October 1.

For his part, ING Bank Manila senior economist Nicholas Antonio Mapa believes the peso tracked the movement of regional currencies.

“EM (emerging market) currencies bounced back sharply despite the risk off tone as the escalating trade war adds to the case for a [US Federal Reserve] rate cut in 2019,” he said.

In a commentary, the Metropolitan Bank & Trust Co.’s Treasury department noted that “latest headline in the US-China trade war indicate that China really does not want [that] to happen, but that they also would not shy away from one if the US continues to make unreasonable demands.”

WITH AFP

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