Peso softens as market prices in reserve requirement cut

The Philippine peso failed to sustain its strength on Thursday as the market priced in a cut in the reserve requirement ratio (RRR) mandated by the central bank.

The local currency lost 13 centavos to close at P52.48:$1 on Thursday from Wednesday's P52.35:$1.

"The market already priced in a 100 basis-point cut in the reserve requirement," a foreign exchange trader from a local bank said in a phone call.

A few minutes after the end of Thursday's trading session, BSP Governor Benjamin Diokno confirmed that the Monetary Board (MB) decided to cut the RRR, by 200 basis points to 16%.

According to Security Bank Chief Economist Robert Dan Roces, the 2-percentage point reduction in the RRR is estimated to inject some P200 billion into the country's financial system.

"Technically, this injection will cause the peso to face stronger depreciation pressures with more money circulating in the domestic economy; and a sharper peso depreciation could stoke inflationary pressures," he explained in a separate commentary.

Diokno in March already hinted at the possibility of easing the RRR once every three months during the next four quarters. — RSJ, GMA News