MNI China Daily Summary: Monday, July 22

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MNI BRIEF: PBOC Cuts 7-Day Repo Rate By 10bp

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Pay concerns push back easing expectations; curve flattens

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USD/PHP Continues To Unwind Earlier April Spike

PHP

USD/PHP is back to mid-Mar lows, last in the 55.45/50 region. The pair has unwound nearly half of the rally we saw in the first 3 weeks of Apr (54.30/35 to 56.35/40). For today, spot is +0.50% firmer in PHP terms, which is the strongest performer within the region. Mid-April lows came in close to 55.00, which could be the next level watched on the downside.

  • There doesn't appear an obvious catalyst for today's rebound. Recent sentiment has turned more positive as the central bank has raised the rhetoric around the FX rate and broadened a hedging tool available to manage FX risks.
  • BSP Governor Medalla also stated the PHP is not over-depreciating relative to other currencies and that the central bank has adequate FX reserves.
  • The BSP Governor also stated that we could see a RRR cut as soon as June if inflation eases. The central bank expects Apr inflation in the 6.3-7.1% range, with this data due next Friday.
  • A RRR cut is not FX supportive but may help local equities. The local index is up close to 0.75% today, although regional equity markets are mostly firmer. Medalla stated earlier in the week it would be a mistake to cut rates before the Fed.
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