Peso risks losing best Asia currency tag

The risk of bond outflows could rise as Philippine central bank is speculated to cut rates
Chief Investment Office06 May 2019
Photo credit: AFP Photo

A sense of caution is gripping peso bulls as markets approach the Philippine central bank’s interest-rate decision.

Increased speculation that the Bangko Sentral ng Pilipinas (BSP) will ease monetary policy on Thursday (9 May) is threatening to break the peso’s Asia-beating rally this quarter. A reduction in the benchmark rate could give foreign investors – who already do not seem too keen on buying Philippine bonds – a reason to sell local debt.

The risk of bond outflows, along with headwinds from rising oil prices and a seasonally strong dollar, are seen reversing the peso’s 1.3% advance against the greenback this quarter, with one firm predicting it will weaken to 53.18 per dollar by end-June. The currency slipped 0.06% to 51.858 on Friday (3 May).

Foreigners bought a net USD3.9b of peso bonds in 2018 – a record in Bloomberg-compiled data going back to 2000 – as the BSP hiked rates by 175 bps. A reduction is “just a matter of timing,” Governor Benjamin Diokno said late last month. The central bank will reduce its benchmark rate by 25 bps to 4.50% on Thursday, according to the median estimate in a Bloomberg survey.

The peso has rebounded almost 5% from a 13-year low in October, thanks to a slew of economic reforms, slowing inflation and plans to boost infrastructure spending. But while improving fundamentals saw S&P Global Ratings upgrade the Philippines’ sovereign credit rating on Tuesday (30 April), adding to the peso’s gains, analysts see little further impact on the currency.

The peso will weaken to 52.7 per dollar by end-June, according to a Bloomberg survey. – Bloomberg News.

The US Dollar Index (DXY) fell 0.32% to 97.520 after a blowout jobs report, the euro rose 0.23% to USD1.1198, the pound climbed 1.08% to USD1.3178, and the yen strengthened 0.37% to 111.10 per dollar.


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