Peso climbs on rate hike hints, stock market gains

THE PESO strengthened versus the greenback on Wednesday as the incoming Bangko Sentral ng Pilipinas (BSP) chief hinted at rate hikes this month and in August and following gains at the stock market.

The local unit closed at P52.915 on Wednesday, rising by 3.5 centavos from its P52.95 finish on Tuesday, Bankers Association of the Philippines data showed.

The peso opened Wednesday’s session at P52.90 against the dollar. Its weakest showing was at P52.935, while its intraday best was at P52.85 versus the greenback.

Dollars exchanged declined to $635.56 million on Wednesday from $745.17 million on Tuesday.

The peso strengthened after Monetary Board member and incoming BSP chief Felipe M. Medalla hinted at rate increases in their June 23 and Aug. 18 meetings, a trader said.

The peso appreciated against the dollar after gains at the stock market and latest inflation data, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

He also said that the possibility of rate hikes also supported the local unit’s climb.

On Tuesday, Mr. Medalla said in a Bloomberg interview that they are “almost” sure to hike at their June 23 meeting and there is also a “90% chance” of another increase at their subsequent review on Aug. 18.

Mr. Medalla said the real question is if an August hike would be the last one for the year and noted decisions beyond this would be data dependent.

Increases worth 25 basis points (bps) in the Monetary Board’s June and August meetings would bring the benchmark rate to 2.75% from 2.25% currently following a hike of the same magnitude at its May 19 review.

Inflation quickened to its fastest pace in over three years in May due to higher food and transport costs, preliminary data from the Philippine Statistics Authority released on Tuesday showed.

Headline inflation in May surged by 5.4% year on year from 4.9% in April and 4.1% a year ago. This matched the 5.4% median estimate in a BusinessWorld poll conducted late last week, which was the midpoint of the 5-5.8% outlook range given by the BSP for that month.

May’s headline print was also the fastest since the 6.1% seen in November 2018.

Year to date, inflation has averaged 4.1%. This is lower than the central bank’s 4.6% forecast but above its 2-4% target for the year.

Meanwhile, Philippine shares continued to rise on Wednesday on sustained bargain hunting and Wall Street’s rally and despite higher oil prices and the World Bank’s dampened global growth outlook.

The benchmark Philippine Stock Exchange index rose by 15.61 points or 0.23% to close at 6,769.62 on Wednesday, while the broader all shares index went up by 6.33 points or 0.17% to 3,604.84.

The trader said the peso may appreciate further on the back of likely strong Eurozone gross domestic product growth.

For Thursday, Mr. Ricafort sees the peso moving between P52.80 and P52.95, while the trader expects the local unit to range from P52.80 to P53 against the dollar. — TJT