BSP Throws Lifeline To Beleaguered Peso By Announcing Off-Cycle 75bp Hike

The Philippine peso turns bid after a surprise off-cycle 75bp rate hike announced by Bangko Sentral ng Pilipinas Governor Medalla.

• The decision was announced during a briefing livestreamed on the BSP's Facebook page. There is no statement on the website when this is being typed.
• The BSP has been stepping up its rhetoric around potential for a rate hike at the next meeting, but the timing and magnitude have certainly provided a surprise.
• Just a week ago, Medalla told reporters that the central bank was prepared to raise the key policy rate by 50bp at the August 18 meeting, but he did not flag potential for an off-cycle move.
• Policymakers may have been nudged towards taking action sooner and more decisively by persistent weakness of the peso, which is operating in close proximity to its all-time lows.
• The risk of more aggressive Fed tightening (on the back of yesterday's CPI print & recent rounds of Fedspeak) may have also influenced the BSP, given accelerating capital outflows affecting the Philippines.
• The BSP maintains its hawkish bias, with Medalla noting that officials stand ready to take further action, which leaves another hike in August firmly on the table.
• Spot USD/PHP has pulled back from earlier highs and last deals -0.175 at PHP56.100, with USD/PHP 1-month NDF last -0.230 at PHP56.260. Previously flagged support levels remain in play.