Peso drops on Powell hints, wage hike risks

THE PESO weakened anew versus the greenback on Monday following hawkish signals from the US Federal Reserve and due to inflation risks amid wage hikes.

The local unit closed at P52.493 per dollar on Monday, shedding 4.3 centavos from its P52.45 close on Friday, based on Bankers Association of the Philippines data.

The peso opened Monday’s session at P52.40 against the dollar. Its weakest showing was at P52.499, while its intraday best was at P52.38 versus the greenback.

Dollars exchanged dropped to $549.84 million on Monday from $978.4 million on Friday.

The peso depreciated as the Fed chief continued to hint on the central bank’s monetary policy tightening plans this year, a trader said in an e-mail.

US Fed Chairman Jerome H. Powell on Thursday reaffirmed they are likely to increase interest rates by 50 basis points (bps) for each of their policy review on June and July, Bloomberg reported. He also said they are prepared to do more, although he said they are not actively considering a 75-bp hike.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the peso weakened following the approved wage hikes in some areas of the country.

“This could lead to higher inflation amid possible risk of second-round inflation effects that also justify any hike in local policy rates,” Mr. Ricafort said in a Viber message.

The Department of Labor and Employment this Saturday approved a P33 increase for the daily minimum wage in Metro Manila and by P55 to P110 for the Western Visayas Region.

The Bangko Sentral ng Pilipinas (BSP) Monetary Board is meeting to review its policy settings on Thursday.

A BusinessWorld poll of 17 analysts conducted last week showed they are divided on the BSP’s next move, with nine betting rates will remain unchanged, while eight are expecting a 25-basis-point (bp) hike on Thursday.

Some analysts said the central bank could still keep rates at record lows on Thursday to wait for more proof of a robust economic recovery, although some analysts said the BSP can already start tightening following stronger-than-expected economic growth in the first quarter.

For Tuesday, both Mr. Ricafort and the trader gave a forecast range of P52.35 to P52.55 versus the dollar. — L.W.T. Noble with Bloomberg