The local stock market sustained its gains since last Friday despite anticipations for improvement on the final report on the United States economy’s first quarter expansion but the peso capped yesterday weaker to a US dollar.

The local unit ended the trading at P43.79 from P43.78 in the previous trading, which a trader said was basically because of stronger dollar in the region.

”This is because of the fresh cut in the Fed’s stimulus program last week and the increase in the BSP’s inflation forecast,” the trader said.

Last week, another $ 10 billion was slashed off the Federal Reserve’s stimulus program, making the monthly purchases amount to just $ 35 billion after the Federal Open Market Committee noted the continued improvement of the US economy.

Also, the Bangko Sentral ng Pilipinas’ policy-making Monetary Board  increased the central bank’s average inflation forecasts for 2014 and 2015 on sustained rise of the rate of price increases mainly of food and beverages due to supply-side factors and continued hike in oil prices.

For 2014, the BSP’s new average inflation forecast is 4.4 percent from 4.3 percent during the MB’s policy meeting last May and the 2015 forecast is now at 3.7 percent from 3.4 percent.

As of last May, inflation averaged at 4.1 percent, at the upper half of the central bank’s three to five percent target for the year.

The trader expects inflation to peak either in July or August and this is why the central bank is expected to tighten its policy rates to thwart the negative impact of higher inflation on its price stability function.

The central bank’s current overnight borrowing or reverse repurchase rate is at record low of 3.5 percent and the overnight lending or repurchase rate is at 5.5 percent. These were last adjusted in October 2012.

Meanwhile, based on the second report on the US’ 2014 first quarter growth, the world’s largest economy contracted by one percent, a reversal from the one percent growth in the initial report.

However, the trader said the number is expected to go back to the positive territory as economic data in the first three months of the year were positive.

With these factors, trading between the local and the US currency started the week at P43.82, weaker than the P43.77 in the previous trading.

But the local unit surged to P43.74 because of anticipations for BSP tightening. However, the peso also slid to P43.85.

This brought the day’s average trading to P43.79, almost unchanged from the P43.78 at the end of last week.

Volume of trade reached $ 509.5 million, lower than the $ 627.1 million in the previous trading.

The peso is projected to trade between P43.70 and P43.90 today.

This week, the bias is for a stronger peso, the trader said but noted that the final report on US’ first quarter 2014 gross domestic product as well as the May 2014 personal consumption report will be among the factors that would impact on the currency trading.

Relatively, the local bourse was generally in positive territory with the Philippine Stock Exchange index posting gains of 0.46 percent or 31.03 points to 6,761.99 points.

Most of the sub-indices tracked the main index led by the property with 1.16 percent or 29.91 points expansion to 2,617.40 points.

On the other hand, the services and mining and oil counters ended the day on the red.

Volume of trade reached 1.01 million shares amounting to P6.22 billion.

Gainers led losers at 101 to 87 while 35 were unchanged.*PNA

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