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Peso sustains gains on Dec. inflation data


MANILA, Philippines - The peso on Tuesday soared past the crucial P47-per-dollar barrier as investors cheered on a better-than-expected inflation data in December. Still, some traders were skeptical of the peso’s strength since the stabilizing consumer prices only cemented expectations of more rate cuts by the policy making Monetary Board, which should diminish the local currency’s allure. The peso closed 20 centavos stronger at P46.96 per dollar from Monday’s finish, breaching the P47-to-the-dollar territory for the first time in two weeks. The government Tuesday reported that consumer prices climbed at an annual rate of 8% last month, below the market’s forecast of 8.8% and the central bank’s estimate of 8.6-9.5%. One trader said this would make a case for at least a quarter-percentage point rate cut on Jan. 29, when the Bangko Sentral ng Pilipinas (BSP) reviews monetary policy, so that market sentiment on the peso remained divided. "The good news on inflation was positive for the peso. However, I’m still biased against buying the peso. We’re expecting the BSP to cut rates and that’s one of the reasons why I won’t bet on the local currency," a trader said. Rafael S. Algarra, treasurer at the Security Bank Corp., however, pointed out that the favorable inflation outlook and its resulting accommodative monetary policy bode well for the Philippine economy, which investors are watchful of. "Theoretically, lower inflation and the consequent lower interest rates mean negative sentiment for the peso, but the lower inflation bolsters a positive view on the Philippine economic environment as the BSP has leeway to prop up the economy," he said. "It’s difficult, even for the offshore [investors], to make an argument to hold on the dollar now," Mr. Algarra added. Remittances that piled up during the holidays, as well as a lack of demand from dollar-dependent sectors such as oil importers, also helped support the peso, traders said. The peso opened weak at P47.30 per dollar and hit a trough of P47.33 in intraday trade. It settled, however, near its intraday peak of P46.93 per dollar. Volume of dollars exchanged grew to $737.32 million from Monday’s $486.5 million. — Maria Eloisa I. Calderon, BusinessWorld
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