Peso strengthens on hints of more BSP rate hikes

The Philippine peso strengthened against the US dollar on Monday, after the Bangko Sentral ng Pilipinas (BSP) hinted at further policy tightening at a Monetary Board meeting next month.

The local currency gained 3 centavos to close at P53.48:$1 from 53.51 on Friday.

“The peso strengthened today after the latest BSP policy meeting minutes released last Friday indicated that the BSP might increase key interest rates in its August Monetary Board meeting,” Guian Angelo Dumalagan, market economist at Land Bank of the Philippines, said.

BSP Governor Nestor Espenilla, Jr. has noted that the central bank is taking into account the potential price pressures of excess volatility in the foreign exchange market.

“The Monetary Board's decision to raise the BSP's policy interest rate was based on its assessment that inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action,” the minutes read.

The Monetary Board decided to deliver back-to-back rate hikes during its June meeting, as inflation expectations remained “elevated” for the year.

The peso's appreciation on Monday came ahead of the third State of the Nation Address (SONA), but Dumalagan said it did not have a significant effect on the foreign exchange market.

“The peso is not expected to be moved by the President's SONA as the peso is more likely to be influenced by global market movers,” he said.

In other Asian markets, the US dollar declined against major currencies after US President Donald Trump criticized the policy tightening of the Federal Reserve.

“The US dollar retreated after US President Donald Trump complained that he was ‘not thrilled' by Fed hikes. We see this as a correction and not as a reversal in the greenback's uptrend,” DBS said in emailed statement.