Peso Losses Limited By BSP Speak Putting Outsized Rate Hikes On The Table

Spot USD/PHP trades flat at PHP55.080, steadying after yesterday's upswing, with further gains capped by comments from incoming Bangko Sentral ng Pilipinas chief, who suggested that policymakers could consider outsized rate hikes to prop up the peso and limit imported inflation.

• The next topside target for spot USD/PHP bulls is PHP55.147, a cyclical high printed on Jun 27. Next resistance is at PHP55.903, the high print of Sep 13, 2005. Bears look for a pullback under yesterday's low of PHP54.600 and further towards the round figure of PHP54.000.
• USD/PHP 1-month NDF last +0.060 at PHP55.150. Bullish focus falls on Jun 27 high of PHP55.280, followed by Nov 21, 2005 high of PHP56.000. Bears look for a dip through Jun 28 low of PHP54.740 towards the PHP54.000 mark.
• Incoming BSP Governor Medalla told reporters Wednesday that the central bank "would clearly consider increasing policy rates by more than our planned 25bp" if it sees "that the exchange rate is overshooting too much, and that selling foreign exchange will not make the problem go away." While he did not present an outsized hike as a likely scenario, the mention of optionality on that front marks a slight hawkish shift in official rhetoric.
• Note that both Medalla and outgoing Governor Diokno had earlier said that the BSP is letting the market determine the peso's value and only intervenes to smooth excessive volatility (Medalla reiterated this stance in Wednesday's comments). Officials had also suggested that a 25bp rate rise was their base-case scenario for August, with the BSP embracing a "philosophy of gradualism."
• Medalla takes office today, alongside the rest of the new administration. Diokno will remain on BSP Monetary Board in his capacity as the new Finance Secretary.
• The BSP has just published bank lending data for the month of May. Growth in loans net of RRPs accelerated to +10.7% Y/Y, its pace has been growing steadily since turning positive in August 2021.