Selling Pressure Hits Peso, BSP Set To Avoid Aggressive Tightening

Spot USD/PHP climbed to a new cycle high of PHP54.835 today and the peso underperforms in the Asia EM basket on the BSP's embrace of "gradualism" in tightening monetary policy. The pair last deals +0.135 at PHP54.810, with bulls looking to an attack on the psychological PHP55.000 barrier. The next layer of resistance above is located at PHP55.140, which capped gains on Oct 27 & 28, 2005. Bears look for a pullback under the PHP54.000 level.

• USD/PHP 1-month NDF last +0.120 at PHP54.900. Next resistance is at PHP55.000, while bears keep an eye on Jun 15 low of PHP53.330.
• Bangko Sentral ng Pilipinas raised the key policy rate by 25bp on Thursday, meeting the expectations of most analysts, as "upside risks continue to dominate the inflation outlook up to 2023, with pressures emanating from the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, as well as pending petitions for transport fare hikes due to elevated oil prices."
• The central bank raised its inflation projections for 2022 (to +5.00% Y/Y from +4.60%) and 2023 (to +4.20% Y/Y from +3.90%), while pencilling in a +3.30% Y/Y forecast for 2024.
• The 25bp rate rise was consistent with the BSP's stated preference for more gradual tightening (i.e. reluctance to hike by 50bp), signalled by incoming Gov Medalla on the eve of the announcement.
• Elsewhere, outgoing President Duterte cancelled talks with China on oil exploration in disputed parts of the South China Sea, leaving it to his successor Ferdinand Marcos to decide if he wants to restart negotiations.