The local currency is expected to get support in the coming weeks as the Bangko Sentral ng Pilipinas (BSP) has expressed its readiness to further hike rates to anchor inflation expectations.
ING Bank Manila economist Nicholas Mapa said the local currency will likely benefit from the BSP’s hawkish statements last Thursday, despite pulling off a lower rate hike during its monetary-policy meeting.
In its November 15 monetary- policy setting, the BSP hiked rates by 25 basis points, bringing the main interest rate to 4.75 percent. The BSP has hiked its main policy rate by a total of 175 basis points for the entire year to curb inflationary pressures.
At the end of her statement, BSP Officer in Charge Maria Almasara Cyd Tuano-Amador said monetary officials are ready to hike rates further if neccessary.
“The BSP remains prepared to take appropriate policy actions as needed to ensure the achievement of its price and financial stability objectives,” Amador said.
This readiness, according to Mapa, will continue to prop up the peso in the near term.
The peso, in its last trading day last week, traded at 52.715 to a dollar, gaining value from the 52.805 to a dollar in the previous day’s close.
This is stronger than the 54.009 to a dollar average value of the peso in the previous month.
“The BSP closed its statement reaffirming its readiness to take appropriate actions to safeguard its price and financial stability objectives. In the near term, the peso will benefit from the recent action while structural flows ahead of the holiday period may also provide an added boost,” Mapa said.
These “structural flows”—in the form of remittances from Filipino migrant workers—are seen to peak in the holiday season as overseas Filipino workers (OFWs) send more money back home to finance Christmas expenses.
Mapa, however, said the strength of the peso may not last. “Over the medium term, however, projected current account deficits will likely exert a mild depreciation pressure until a clear reversal is seen on the external front.”