Rate cut seen despite peso weakness

Even as the Philippine peso depreciated against the United States (US) dollar at a pace that was among the worst among emerging market (EM) currencies last week, the Bangko Sentral ng Pilipinas (BSP) is still expected to cut interest rates this week.

- By DERCO ROSAL

Data from the Bankers Association of the Philippines (BAP) showed that the peso slipped back to the weaker P56 level versus the greenback last Friday, June 13—a development that bore the impact of Israel's airstrikes against Iran's nuclear program.

Friday's close at P56.21:$1 was the local currency's weakest level since April 28, when it closed at P56.42.

Think tank Capital Economics reported on June 13 that the Philippine peso was among the "worst-performing EM currencies" since June 6.

Capital Economics deputy chief markets economist Jonas Goltermann noted that Israel's overnight strikes on Iran allowed the US dollar to recover "some of the ground it lost earlier [last] week," hence strengthening against the peso and other currencies.

While the US dollar remains relatively weak, hitting an over three-year low, Capital Economics stressed that the greenback's "safe-haven characteristics are still intact when it comes to at least some types of risk-off events."

In its Asia FX weekly report dated June 13, Japanese financial giant MUFG Bank Ltd. also noted that the US dollar gained support from safe-haven demand after struggling recently. While it was a gain for the greenback, Asian currencies, particularly the peso, South Korean won, and Indian rupee, lost their footing due to their "sensitivity to risk and relatively higher reliance on oil imports."