Peso strengthens anew on RRR cut

peso strengthens anew on rrr cut - Peso strengthens anew on RRR cut

THE PESO strengthened versus the dollar on Tuesday as the central bank cut banks’ reserve ratio anew and on the US Federal Reserve’s aggressive initiatives to lessen the economic impact of coronavirus disease 2019 (COVID-19).

The local unit closed at P50.90 versus the greenback on Tuesday, surging 43 centavos from its P51.33-a-dollar finish on Monday.

The peso opened the session only slightly better at P51.20 per dollar. Its weakest showing was at P51.21, while its intraday best was its close of P50.90 against the greenback.

Dollars traded went up to $563.9 million yesterday from $422.7 million on Monday.

A trader attributed the weaker dollar to further stimulus from the US central bank.

“The peso appreciated due to the broad softening of the greenback after the US Federal Reserve announced more drastic monetary policy easing measures overnight,” the trader said in an e-mail.

The Fed on Monday announced extraordinary array of programs to backstop an economy reeling from sweeping restrictions on commerce that scientists say are needed to slow the coronavirus pandemic and ultimately keep more people safe, Reuters reported.

For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and “soon” will roll out a program to get credit to small and medium-sized business. It also said it will expand its asset purchases by as much as needed to stabilize financial markets.

The series of actions marks a massive intervention by the US central bank beyond the financial markets, where it has so far concentrated its firepower, into the real US economy.

Aside from the Fed’s move, the Bangko Sentral ng Pilipinas’ (BSP) announcement of a 200-basis-points (bps) reduction in universal and commercial banks’ reserve requirement ratio (RRR) also boosted the peso, according to Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“The latest cut could also help support and shore up confidence on both the local economy and financial markets, including the peso,” Mr. Ricafort said in a text message.

The move will bring the RRR of big banks to 12% effective March 30, according to BSP Governor Benjamin E. Diokno. He said potential cuts to the reserve requirements for other banks and non-bank financial institutions will also be explored.

The reserve ratios of thrift and rural banks are at four percent and three percent, respectively. The RRR of non-banks with quasi-banking functions is at 14%.

“The RR cut is intended to calm the markets and to encourage banks to continue lending to both retail and corporate sectors. This will ensure sufficient domestic liquidity in support of economic activity amidst this global pandemic due to the coronavirus disease,” the central bank said.

For today, the trader expects the peso to move around the P50.85 to P51.05 levels, while Mr. Ricafort gave a forecast range of P50.75 to P51. — L.W.T. Noble with Reuters

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