Peso up on EBC cut, expected hike in BSP rates

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MANILA– The peso improved to a dollar Friday on general weakening of the US currency partly due to the cut in European Central Bank’s (ECB) interest rates.

It ended the day at P43.65 from Thursday’s P43.81, which BPI lead economist Emilio Neri Jr. said is also due to the increase in inflation rate, which in turn would prompt Philippine monetary officials to tighten its policy rates.

Neri expects the Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) to hike by 25 basis points the central bank’s key rates as well as the banks’ reverse repurchase (RRP) rate when it meets on the 19th

To date, the BSP’s overnight borrowing or reverse repurchase (RRP) rate is at record-low of 3.5 percent and the overnight lending or repurchase (RP) rate is at 5.5 percent.

”It has to increase rates to achieve the inflation target,” Neri said.

With these factors, the peso opened the day at P43.65 from P43.85 a day ago.

It slightly strengthened to P43.63 but also moved down to P43.70.

This brought the day’s average to P43.65, better than the P43.81 in the previous day.

Volume of trade reached US$ 837.4 million, higher than day-ago’s US$ 813.4 billion.

For next week, Neri expects the peso to trade between P43.50 and P43.95 noting that this depends on the report on US’ non-farm payrolls for May 2014.

Neri said market expectations is a growth of 218,000.

He cited that if actual numbers is lower than this the peso will become stronger but if it is higher the peso is expected to depreciate.