Peso Gains After Inflation Concerns Push BSP To First Rate Hike Since 2018

The peso trades on a firmer footing after the BSP raised interest rates for the first time since 2018 on Thursday and flagged a sense of concern with rising inflationary pressures.

• Bangko Sentral ng Pilipinas raised its benchmark policy rate by 25bp on Thursday, in line with expectations, after Governor Diokno hinted at potential for such a move the day before it was announced. The central bank noted that economic conditions allow it to "continue rolling back its pandemic-induced interventions, consistent with its exit strategy from monetary accommodation." Furthermore, policymakers were cognisant that the risks to the inflation outlook are skewed to the upside. Accordingly, the Monetary Board expects average inflation "to breach the upper end of the 2-4 percent target range" this year, with second-round effects already manifesting in higher minimum-wage adjustments in some regions and rising inflation expectations.
• Speaking after the Monetary Board meeting, Governor Diokno noted that the central bank stands ready to provide dollar liquidity in the case of tighter financial market conditions and exchange rate pressures, but the flexible exchange rate remains the first line of defence.
• Spot USD/PHP trades -0.180 at PHP52.280. Bears look for a dip through May 12 low/50-DMA at PHP52.200/52.199, which would expose Apr 28 low of PHP51.970. Conversely, the key layer of resistance remains at PHP52.500.
• USD/PHP 1-month NDF last seen -0.010 at PHP52.420. Bears look for a fall through May 11 low of PHP52.260, while bulls keep an eye on May 9 high of PHP53.250.