Hawkish Talk From BSP Gov Medalla Supports Philippine Peso

The combination of overnight USD sales and hawkish comments from BSP Gov Medalla lends support to onshore Philippine peso, which is the second-best performer in emerging Asia after the Singdollar. Still, USD/PHP continues to operate in the vicinity of historic highs.

• Spot USD/PHP trades -0.049 at PHP58.950, with bears keeping an eye on Oct 5 low of PHP58.395. USD/PHP 1-month NDF last -0.010 at PHP59.150, with downside focus falling on Oct 5 low of PHP58.520.
• Bangko Sentral ng Pilipinas will consider another outsized interest-rate hike to prop up the peso, as currency weakness amplifies domestic price pressures. "It's a question of whether it is 50 or 75 basis points," Governor Medalla told Bloomberg, flagging the costs of an outsized hike in the way of slower economic recovery. The Governor noted that "what's on the table is a combination of using reserves, raising rates, and of course, if possible, some form of international cooperation."
• Last week Medalla admitted that the central bank has been "very active" in the FX market after data showed that its foreign reserves dropped to a two-year low of $95.0bn in September. It also took steps that included the announcement of increased central bank's debt issuance ("more permanent form of sterilisation"), tightening rules on reporting FX transactions and moral persuasion. The latest comments mark an escalation in the BSP's efforts to support the peso.
• The BSP will have two more regular monetary policy reviews this year (November 17 & December 15). The MIPR tool shows the market is pricing 75bp worth of tightening over a three-month time horizon.
• Foreign investors were net sellers of $0.51mn in Philippine stocks Thursday, bringing the net YtD outflow to $1.2394bn. The PSEi added ~0.8% come the end of play, with a further ~0.8% upswing seen as trading resumed today.