USD/PHP: Peso hits fresh 6-week low as Philippine inflation slows

Key points

The Philippine Peso registered a fresh six-week low against the US Dollar on Friday, after data showed Philippine inflation still remained above the central bank’s target.

Bangko Sentral ng Pilipinas (BSP) said after the inflation report that it stood ready to tighten monetary policy if required to restrain price pressures.

Annual headline inflation in the Philippines slowed to 4.7% in July from 5.4% in June. It has been the lowest inflation rate since March 2022, as prices of food and utilities rose at a slower pace.

Still, BSP noted upside risks from wage and transport fare increases and from food supply bottlenecks remained.

“The BSP stands ready to adjust the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second order effects,” the central bank said in a statement, cited by Reuters.

Core CPI inflation, which does not take into account volatile categories such as food and fuel, decelerated to 6.7% in July from 7.4% in June.

“If supply side shocks are large enough and they are not compensated by weaker demand, then yes we will have to raise again,” BSP Governor Eli Remolona told CNN.

BSP left its key policy rate steady at 6.25% at its last two policy meetings, after delivering a total of 425 basis points of rate hikes.

“The bar for BSP to start its cutting cycle in the near term remains high, in our view, and will be carefully assessed by BSP with due consideration of the Fed outlook to avoid adding to FX pressures and the risk of capital outflows,” Nomura analysts wrote in an investor note.

As of 7:10 GMT on Friday USD/PHP was gaining 0.43% to trade at 55.72. Earlier in the session, the exotic Forex pair went up as high as 55.74. The latter has been the pair’s strongest level since June 26th (55.78).