{"id":19256,"date":"2024-06-13T03:02:22","date_gmt":"2024-06-13T03:02:22","guid":{"rendered":"https:\/\/energybuzz.ph\/staging\/6915\/peso-slump-could-derail-rate-cuts\/"},"modified":"2024-06-13T03:02:22","modified_gmt":"2024-06-13T03:02:22","slug":"peso-slump-could-derail-rate-cuts","status":"publish","type":"post","link":"https:\/\/energybuzz.ph\/staging\/6915\/peso-slump-could-derail-rate-cuts\/","title":{"rendered":"Peso slump could derail rate cuts"},"content":{"rendered":"
\n

By Luisa Maria Jacinta C. <\/b>Jocson, <\/b><\/span>Reporter<\/i><\/p>\n

THE PESO WEAKNESS could <\/span>impact the Bangko Sentral ng Pilipinas\u2019 (BSP) policy easing cycle even after inflation has settled <\/span>within target for a sixth straight month in May, analysts said.<\/p>\n

\u201cThe recent weakness of the Philippine peso poses a significant challenge for the central bank as it navigates its monetary policy,\u201d Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.<\/p>\n

In May, the peso sank to the P58-per-dollar level for the first time since November 2022. Since then, the BSP has intervened in \u201cmodest\u201d <\/span>amounts to keep markets orderly.<\/span><\/p>\n

The peso closed at P58.68 per dollar on Tuesday, strengthening by 11 centavos from its P58.79 finish on Monday.<\/span><\/p>\n

\u201cFrom how the (peso) has been performing lately, we think that (peso) movement\/performance is what the BSP will prioritize,\u201d Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message.<\/span><\/p>\n

GlobalSource country analyst and former BSP deputy governor Diwa C. Guinigundo said that a weak peso may contribute to stronger price pressures. \u201cThat should make monetary policy more cautious about an early easing,\u201d he said in a Viber message.<\/p>\n

\u201cA depreciating peso could amplify inf<\/span>lationary pressures by increasing the cost of imports, potentially constraining the BSP\u2019s ability to ease policy,\u201d Mr. Roces added.<\/p>\n

Headline inflation quickened to 3.9% in May from 3.8% in April but marked the sixth straight month that inf<\/span>lation settled within the BSP\u2019s 2-4% target band.<\/p>\n

Inf<\/span>lation averaged 3.5% in the first five months, matching the BSP\u2019s full-year forecast.<\/p>\n

If inflation continues to settle within target despite upside risks, Mr. Guinigundo said that the BSP may start cutting rates.<\/span><\/p>\n

\u201cThis confidence should be communicated well and in the proper context of successful inf<\/span>lation management. That should convince the market that BSP is not just being too aggressive but is well grounded in its policy decision to ease. Speculation in the (foreign exchange) market will be minimized, if not totally pacif<\/span>ied,\u201d he said.<\/p>\n

Mr. Guinigundo said that peso weakness can be minimized if the central bank \u201cwill continue to emphasize the encouraging trend of inflation and an ultimate within-target reading of the average inflation by the end of the year.\u201d<\/span><\/p>\n

BSP Governor Eli M. Remolona, Jr.<\/span> told Reuters Global Markets Forum on Tuesday that the central bank is less hawkish than before but is still f<\/span>irm on wanting inf<\/span>lation to settle near the middle of the 2-4% target.<\/p>\n

He earlier said that the BSP could begin cutting rates as early as August.<\/p>\n

Meanwhile, Mr. Roces noted that cutting ahead of the US Federal Reserve may be risky and could also impact the peso.<\/span><\/p>\n

\u201cFurthermore, lower interest rates ahead of the Fed could widen the interest rate dif<\/span>ferential, risking capital outf<\/span>lows and further currency depreciation,\u201d he said.<\/p>\n

\u201cThis scenario demands a delicate balance: while the BSP has some leeway to support domestic growth through rate cuts, it must carefully manage the consequences on inf<\/span>lation and investor conf<\/span>idence.\u201d<\/p>\n

Mr. Remolona has said that while the BSP monitors the Fed\u2019s moves, its own monetary decisions are independent of the US central bank. The BSP also does not need to wait for the Fed to begin its own easing cycle, he said.<\/span><\/p>\n

Meanwhile, Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said that inflation still remains the key indicator to watch before any rate cut.<\/span><\/p>\n

\u201cWe need to see a steady decline in inflation expectations as well as the headline number to see a cut in August. The next two months are critical to see the inflation trend to trend lower,\u201d he said in a Viber message.<\/span><\/p>\n

The BSP earlier said that inf<\/span>lation could temporarily breach the 2-4% target until July due to base ef<\/span>fects.<\/p>\n

\u201cThe timing and size of the BSP rate cuts will be driven by our gross domestic product\u2019s (GDP) soft patch because of higher real interest rates, and f<\/span>iscal spending constraints, followed by the US Fed\u2019s timetable,\u201d Mr. Asuncion added.<\/p>\n

GDP grew by 5.7% in the f<\/span>irst quarter, faster than the 5.5% a quarter earlier but slower than the 6.4% a year ago.<\/p>\n

The government is targeting 6-7% growth this year.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

THE PESO WEAKNESS could impact the Bangko Sentral ng Pilipinas\u2019 (BSP) policy easing cycle even after inflation has settled within target for a sixth straight month in May, analysts said.<\/div>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[1],"tags":[14644,1108,2527,14878,15718,1744,7970],"class_list":["post-19256","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-bworldonline","tag-could","tag-cuts","tag-derail","tag-peso","tag-rate","tag-slump"],"yoast_head":"\nPeso slump could derail rate cuts - Energy Buzz<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/energybuzz.ph\/peso-slump-could-derail-rate-cuts\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Peso slump could derail rate cuts - 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