Peso sank to a six-week low against the dollar following statements from Governor Benjamin E. Diokno of the Bangko Sentral ng Pilipinas (BSP) about reducing banks’ reserve requirement ratio (RRR) quarterly.
The peso shut the session at P52.70 versus the dollar on Tuesday, slumping by 50 centavos from the P52.20 finish on Monday. Marking the peso’s worst in more than six weeks or since P52.86 per dollar last January 24.
Tuesday’s session saw peso stronger at P52.13 against the dollar, leapt to as high as P52.11 intraday. Though it closed the session at its worst showing.
Trading volume gushed to $1.744 billion yesterday from the $833.54 million that switched hands the previous day.
A foreign exchange trader stated the peso reinforced primarily as the market “tried to short the dollar against the peso.”
“But as we saw the BSP Governor Diokno gave remarks on reserve ratio cuts, we saw the market up to P52.40 in the morning session,” the trader stated over phone.
The new central bank chief implied at the possible simplification of reserve standards for banks once every three months.
“I think there’s room for monetary easing. It could be one percentage pointing every quarter for the next four quarters. We’ll look at the data and see,” Governor Diokno said.
He further said that any future changes to the reserve requirement ratio are inevitable to bring down the ultra-high regime and not so much about providing stimulus for the state infrastructure push.
“During the afternoon session, as we saw the offshore prices of the dollar-peso rising at a very high rate, we saw the market to continue to rise until P52.70,” the trader supplemented.
BSP reduced the RRR in March and May last year, bringing the obligatory reserves for big banks to 18% of their total deposits.
“We’ll look at the data and see, because every time we reduce our reserve requirement by 1%, that translates to P90-100 billion in the economy,” Mr. Diokno further stated.
In the meantime, another trader credited the peso’s slump to the release of the country’s trade data.
“The peso weakened after the Philippine January 2019 trade balance report reverted to a wider deficit after the narrowing in December 2018,” the second trader over email.
The country’s trade deficit broadened in January to $3.76 billion from the $3.75 billion recorded the previous month, as imports grew by 5.8% and exports declined by 1.7%.
As of today, the first trader stated the peso may move between P52.50 and P52.80 versus the dollar, while the other gave an estimate a P52.55-P52.85 range.