The BSP has a flexible and free-floating exchange rate policy, which means it is market-determined. The BSP’s key rate remains at 6.25 percent for the past three Monetary Board policy meetings in a row, but the BSP always signals its hawkish stance. 22, Remolona said BSP’s tightening bias is good for the peso-US dollar rate because it props up the local currency despite some volatility. A peso depreciation can also directly affect inflation since it will increase the price of imported commodities. A cut in rate can lead to a weak peso, for example, while a rate hike could do the opposite. Policy rate actions have an impact on the exchange rate. The Ayala-led bank said that if a recession in the US happens, then the US Fed “may cut its rates and the BSP will likely follow (but) in this situation, the appreciation of the local currency will likely be smaller compared to other currencies given the still substantial current account deficit of the Philippines this year and in 2024.” Once the Fed is done hiking, the peso may strengthen as markets will likely assess the possibility of rate cuts,” said BPI. “But the behavior of the local currency in 2023 may largely depend on what the Federal Reserve will do. For this reason, our forecasts also do not reflect any sustained decline in USD-PHP for now,” added HSBC.īPI, on the other hand, has a more broad strokes peso outlook and did not go into detail, other than to note the sideways movement of the peso. “More broadly, USD strength and limited improvement in sight for the Philippines’ trade deficit mean that the PHP will only find periodical reprieve when the funding sources of its trade deficit – services surplus, remittance inflows, FDI, and portfolio inflows – strengthen. “PHP NEER is in the middle of the smoothing range, which suggests to us that the defence at 57 will continue perhaps until we see another 1.5-2% strength in PHP NEER,” noted HSBC. However, HSBC noted that the NEER is 1.5 percent to two percent weaker than levels in mid-July this year, when the BSP was buying US dollars to "smoothen" the peso’s appreciation. HSBC said the NEER is currently two percent to three percent stronger than levels seen in October 2022, when the BSP sold the US dollars to smooth the peso’s decline when it nearly breached P60. One of the effective exchange rates that BSP uses is the nominal effective exchange rate or NEER which is a weighted average of bilateral exchange rates with the currencies of trading partners.Īn increase in the NEER index would mean that, on average, fewer pesos are needed to purchase a unit of foreign currency while a decrease would mean otherwise, said the BSP. Since 2013, the BSP has been analyzing the competitiveness of the peso based on three indices which measure the nominal and real effective exchange rates of the peso relative to the currencies of all major trading partners. HSBC added that for now, this is not yet a notable concern. US) weaken, we are likely to see a higher PHP NEER, which may not be desired by the BSP when the exports sector still faces headwinds,” said HSBC. If the BSP defends 57 while currencies of the Philippines’ key trading partners (ex. The BSP’s support of the peso “will be conditioned on no significant strength in PHP NEER. The question is whether the BSP will still hold its defence at 57 should our broad USD view materialise,” said HSBC.įor now, the bank said “we think so (BSP support at P57) and we expect USD-PHP to stay around 57 over our forecast horizon (as this) view is linked to the BSP’s hawkish rhetoric, the latest beat in monthly inflation, and further upside risks.” “We see broad USD (US dollar) strength into the end of 2024 and elevated near-term pressure on every Asian currency, including the PHP (peso). The British bank has noted that the exchange rate has been forming a relatively narrow range in past weeks, or within the P56.50 to P57 range. This was Relomona’s clearest forward guidance in as far as the peso is concerned. Remolona himself said, that they could maintain a below-P57 exchange rate for the next months. The sentiment echoed what BSP Governor Eli M. HSBC said the BSP will likely cap the exchange rate at below P57. 11, data from the Bankers Association of the Philippines (BAP) showed the peso opening at P56.63, stronger than Friday’s opening of P56.74. In a commentary, HSBC Global Research said the “defense” of the peso continues at P57 or below “but with conditions.”īank of the Philippine Islands (BPI) in its own view, said the peso “may move sideways for now as market players weigh substantial imports, global financial market developments, and the central banks’ future policy move.”Īt the trading Monday, Sept. The market is seeing signs that the Bangko Sentral ng Pilipinas (BSP) will not let the peso-US dollar exchange rate breach P57.
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