Peso under pressure<\/strong><\/p>\n\n\n\n The peso fell against the dollar to P56.775, its lowest since late November 2022, leading up to the widely expected BSP interest rate hold. This is roughly around the same trough reached by the peso against the dollar the last time the rate differential fell to the similar level of 75 bps in June last year. We expect momentum to carry it further to around P57.50 before stabilizing. The weaker peso would be a negative for companies importing raw materials, and will likely keep the pressure on gross margins of manufacturers who are already struggling with high input costs.<\/p>\n\n\n\n No need to follow the Fed<\/strong><\/p>\n\n\n\n The Bangko Sentral ng Pilipinas (BSP) held benchmark rates steady at 6.25% during its Monetary Board (MB) meeting Thursday. This is the third consecutive policy meeting that the MB held rates steady since the 25 bps rate hike in March, bucking the Federal Reserve\u2019s move to raise rates by 25 bps last month. This now takes the rate differential with the United States to 75 bps, its lowest since August 2022.<\/p>\n\n\n\n A balancing act<\/strong><\/p>\n\n\n\n The move comes after headline inflation declined for the 6th consecutive month and reached a 13-month low of 4.7% in July. BSP Governor Remolona said that while there are upside risks to inflation, the BSP\u2019s baseline projections continue to show a return to inflation target in 4Q 2023, despite a generally higher path relative to the previous forecast in June. The BSP also faces a tightrope act after GDP growth slowed to 4.3% in 2Q 2023, its slowest pace of growth since the COVID lockdowns, highlighting the need for the BSP to ease up on its tightening to keep economic activity at healthy levels.<\/p>\n\n\n\n