Peso Gains As Runaway Inflation Fans BSP Tightening Bets, Trade Deficit Narrows

The Philippine peso has appreciated after data showed that Philippine CPI inflation quickened more than expected last month, supporting the case for aggressive monetary policy tightening by Bangko Sentral ng Pilipinas.

• Headline consumer inflation printed at +7.7% Y/Y versus +7.1% expected and +6.9% recorded in September. Not only did price growth accelerate to a near 14-year high, but the local statistics authority flagged a "substantial" probability that prices will grow even faster this month, with recent storms affecting the prices of food that constitute around a third of the CPI basket.
• BSP Gov Medalla calibrated his rhetoric, noting that the central bank may match more Fed rate hikes if domestic inflation continues to accelerate. Medalla had earlier said that the BSP will hike its policy rate by 75bp at the next meeting, mimicking the Fed's latest move. In today's remarks, he refused to draw a line in the sand for the peso, noting that he flagged the next interest-rate move well in advance to avoid depleting the Philippines' dollar reserves.
• On a (relatively) positive note, trade deficit narrowed to $4.820bn in Sep from $6.021bn prior versus median estimate of $6.025bn. Persistent twin deficit has been a major headwind to the peso.
• Spot USD/PHP last trades -0.245 at PHP58.580. The 50-DMA provides initial support at PHP57.947, while bulls look for gains towards the PHP59 record high.
• USD/PHP 1-month NDF last -0.26 at PHP58.70. Bears would be pleased by a sell-off past the 50-DMA at PHP58.236, while bulls keep an eye on the PHP59.46 all-time high.