Incoming BSP Governor Signals High Likelihood Of At Least Two More Rate Hikes

Spot USD/PHP is under light pressure as Bangko Sentral signalled high probability of rate hikes at each of the next monetary policy meetings. The pair last deals -0.069 at PHP52.890, with bears looking for a deeper sell-off towards PHP52.500. Bulls need a push through Jan 22, 2019 high of PHP53.040 before targeting Dec 20, 2018 high of PHP53.250.

• USD/PHP 1-month NDF trades +0.020 at PHP53.070. Topside focus falls on Jun 6 high of PHP53.280, while bears keep an eye on May 30 low of PHP52.230.
• BSP's Medalla, who is set to become Governor on July 1, said in an interview that the central bank will likely deliver at least two more rate hikes to curb inflation. He noted that "it's almost a sure thing to everyone that we will raise in June" and there is a "90% chance there's another one in August. The real question is: is that the last one?" According to the incoming BSP Governor, further rate increases will depend on data.
• In addition, Medalla said that the reserve requirement ration may be lowered this year to offset to impact of stimulus withdrawal. The central bank is planning to trim the RRR by 2ppts a month or two before the December expiry of a rule that counts lending to small businesses as compliance with the requirement.
• Separately, outgoing BSP Gov Diokno pledged commitment to a flexible exchange rate policy and said the authorities would only intervene to limit volatility.
• On the data front, focus turns to monthly trade balance & unemployment, due Thursday.