Market players are now frontloading the expected monetary tightening in anticipation of the continued uptick in consumer price index (CPI) due to higher prices of basic commodities, particularly, rice.

A foreign bank industry source projected the peso to trade up to P42.25 level in the coming days.

"The fx (foreign exchange) rate will be at the receiving end for as long as the interest rates remain at its present levels," the source said.

While the market has already assumed the "no change" decision of the Bangko Sentral ng Pilipinas (BSP) on its key overnight interest rate policy, the admission from BSP Governor Amando M. Tetangco, Jr. the difficulty of meeting inflation rate target this year of between 3.0 percent and 5.0 percent plus or minus one percent.

This, basically, negates earlier pronouncements that 2008 inflation assumption is still within reach amidst the challenging business environment, which makes monetary management relatively difficult.

As a result, the peso opened weaker by one centavo at P41.98 from its Thursday’s close of P41.97. Brisk demand for green sent the local unit to touch back to P42.07 during the mid-morning trade at the spot currency market.

The participation of the BSP in the automated dollar trading, selling greens "well within the range quotes" did not stave off the peso from further weakening.

Rizal Commercial Banking Corporation (RCBC) Executive Vice President and treasury head Eduardo Sergio G. Edeza nonchallantly said the depreciation of the local back to P42 "is as expected."

"It is a short-term weakness of the currency," Edeza said, affirming market sentiments on a higher inflation outlook, who he described as not only isolated in the Philippines "but a global phenomenon."