THE PESO appreciated against the dollar on Thursday after the Bangko Sentral ng Pilipinas (BSP) kept benchmark borrowing costs unchanged but signaled it would need to keep rates higher for longer to keep inflation expectations anchored.

The local unit closed at a fresh three-month high of P55.79 per dollar on Thursday, strengthening by 3.5 centavos from its P55.825 finish on Wednesday, based on Bankers Association of the Philippines data.

This was its best close in more than three months or since its P55.74-per-dollar finish on Aug. 4.

The peso opened Thursday’s session weaker at P55.90 against the dollar. Its intraday best was at P55.75, while its weakest showing was at P55.935 versus the greenback.

Dollars exchanged went down to $1.28 billion on Thursday from $1.48 billion on Wednesday.

The peso rose against the dollar on Thursday after the BSP kept its policy rate unchanged at a 16-year high of 6.5%, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The BSP on Thursday kept its target repurchase rate at 6.5% amid easing inflation, as expected by 15 of 18 analysts in a BusinessWorld poll last week. Interest rates on the central bank’s overnight deposit and lending facilities were also maintained at 6% and 7%, respectively.

The pause came after the BSP raised its rates by 25 basis points (bps) in an off-cycle move on Oct. 26.

It has raised interest rates by 450 bps since May 2022 to temper inflation.

Headline inflation fell to a three-month low of 4.9% in October from 6.1% in September.

However, this marked the 19th straight month that inflation breached the central bank’s 2-4% target. For the 10-month period, inflation averaged 6.4%.

The peso was supported by signals from the BSP that rates will need to stay higher for longer due to lingering upside risks to inflation, Mr. Ricafort added.

BSP Deputy Governor Francisco G. Dakila, Jr. on Thursday said the central bank is prepared to resume its tightening cycle to make sure inflation goes back within the 2-4% annual target.

“The peso appreciated following the softer US producer inflation and retail sales reports for October 2023,” a trader added in a text message.

US retail sales fell for the first time in seven months in October as motor vehicle purchases and spending on hobbies dropped, pointing to slowing demand at the start of the fourth quarter that further strengthened expectations the Federal Reserve is done hiking interest rates, Reuters reported.

That was supported by other data on Wednesday showing the biggest decline in producer prices in three-and-a-half years in October on the back of cheaper gasoline. The reports followed on the heels of news on Tuesday that consumer prices were unchanged last month for the first time in more than a year.

Retail sales slipped 0.1% last month, the Commerce department’s Census Bureau said. Data for September was revised higher to show sales increasing 0.9% instead of the previously reported 0.7% rise. Economists polled by Reuters had forecast retail sales would fall 0.3%.

A separate report from the Labor department’s Bureau of Labor Statistics on Wednesday showed the producer price index (PPI) for final demand declined 0.5% in October, the largest decrease since April 2020. The PPI rose 0.4% in September.

Economists had forecast the PPI would edge up 0.1%. In the 12 months through October, the PPI increased 1.3% after rising 2.2% in September.

For Friday, the trader said peso could strengthen further before the release of US jobs data.

The trader sees the peso moving between P55.65 and P55.90 per dollar on Friday, while Mr. Ricafort expects it to range from P55.70 to P55.90. — AMCS with Reuters

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