Two days before the central bank will decide its next monetary policy stance, the peso rebounded to the P56 level versus the greenback on Aug. 13.

This was only a week after appreciating to the P57 range due to US recession fears resulting to a weakened US dollar. 

The local currency closed at P56.96 from Monday’s P57.316. The peso opened resilient at P57.25 and at its strongest at P56.92 intra-day.

The last time the peso was near Tuesday's level was April 17, 2024 at P56.917 based on central bank data.

Based on data from the Bankers Association of the Philippines, the peso was last seen at the same range on April 15 at P56.808 before breaking P57 the next day.

For months, the exchange rate stayed stable at P57-58 amid the Bangko Sentral ng Pilipinas’ (BSP) hawkish stance or tightening bias. The BSP has since changed its tune from less hawkish to slightly dovish.

Since May this year, the BSP has signaled that it could start easing in the second half of 2024, most likely around the third quarter. There is only one policy rate meeting in the third quarter and that is Thursday, Aug. 15.

The market is mixed on when the BSP's Monetary Board will start cutting its 17-year high 6.5 percent target reverse repurchase or RRP rate, given the above-target but expected 4.4 percent inflation for July and the 6.3 percent second quarter GDP results. 

Some economists said the BSP may not cut the policy rate this week given these scenarios, but there are also a majority of market analysts that think the BSP will have to cut ahead of the US Federal Reserve which is expected to reduce its own rates in September.

Citi economist Nalin Chutchotitham said she continues to expect the BSP will cut the key rate by 25 basis points on Thursday despite the high inflation print which was temporary.

Robert Dan Roces, the chief economist at Security Bank Corp. said the "growth concern, combined with core inflation moderating to a 29-month low and the recent investment slowdown, supports the case for easing."

Since inflation is expected to moderate back to within the two percent to four percent target range this year and in 2025, coupled with a waning growth momentum, the consensus was that the central bank will opt for a rate cut because waiting until October, when the US Federal Reserve may have already made its move by then, will be too late.

Standard Chartered Bank's economist and foreign exchange analyst Jonathan Koh said in a press briefing recently that the BSP will have to cut its high 6.5 percent policy rate because the growth path is "soft" and the pass-through of inflation is not there. 

As for the peso, it could rally against the US dollar in September if the BSP cuts before the US Fed, he added. He also expects the peso to close the year at P57 versus the greenback.