The easing of inflation in the United States, the world’s largest economy, is a positive development for global financial markets that could boost the local currency in the coming months, an economist said over the weekend.
US inflation eased further to a new two-year low of 3 percent in June 2023 from 4 percent in May 2023.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the number was moving closer to the US Federal Reserve’s target of 2 percent, which could be a source of new leads for the U.S./global/local financial markets.
“If the US inflation goes to the Fed’s target of 2 percent later this year, at the earliest, then this could eventually justify and usher the start of Fed rate cuts especially into 2024…,” Ricafort said.
He said if that happens, it could also be matched locally and would become a major positive lead/catalyst for the global and local financial markets for the coming months.
The peso on Friday strengthened further against the greenback to a more than three-month high of 54.4 from 54.51 a day ago. It was its strongest since the 54.4 on April 5, 2023.
Ricafort pointed to some seasonal increase in OFW remittances and conversion to pesos for tuition payments to finance other school opening-related expenditures as one of the reasons for the peso’s appreciation.
He said since the start of the year, the peso appreciated by 2.4 percent to 54.4 as of July 14 from 55.76 at the end of 2022. This appreciation was one of the strongest in the region next to Indonesian rupiah’s 3.9 percent.
Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. earlier said the policy-making Monetary Board would consider the possibility of cutting the key interest rates within the year if inflation declines to 4 percent, which is the upper limit of the target range.
Last month, the inter-agency Development Budget Coordinating Committee narrowed down the peso-dollar exchange rate assumption for 2023 to 54 to 57 and is expected to be broadly stable at 53 to 57 for the remainder of the medium-term.
Hongkong and Shanghai Banking Corp. also projected the peso to end the year stronger at 54.5 per US dollar amid the loosening monetary policy in the United States.
Fan Cheuk Wan, HSBC chief investment officer for Asia, also downplayed in an online briefing the impact of global uncertainties on the strength of the peso going forward.
Fan sees the Federal Reserve to be near the peak in policy rates and she expects one more rate hike by 25 basis points in July.
The peso fell to an all-time low of 59 per US dollar last October 2022 amid expectations that the Fed by that time would raise interest rates.
The peso closed 2022 at 55.755, losing P4.756 compared to the 50.999 on the last trading day of 2021.
