‘We recommended buying USD-PHP after the pair broke 57. We are now moving towards a sell on rally stance.’ The upward trend, said HSBC global foreign strategist Lenny Jin, might soon be halted as the BSP historically limits the level to 58.
Multinational bank HSBC advised consumers and investors to exchange US dollars and Philippine peso as the latter further weakened, nearing the threshold of the Bangko Sentral ng Pilipinas (BSP).
“We recommended buying USD-PHP after the pair broke 57. We are now moving towards a sell on rally stance,” HSBC global foreign strategist Lenny Jin said.
He said the upward trend might soon be halted as the BSP historically limits the level to 58.
“We expect P58 per dollar to be forcefully defended by the BSP and upside in spot rates is therefore limited, in line with the BSP’s hawkish tone when the USD-PHP approached P58 on 25 April,” Jin said.
The peso closed at P57.62 on Friday, weaker than the P57.465 on Thursday based on the data from the Bankers Association of the Philippines.
No rush to intervene drastically
Jin’s statements came after BSP Governor Eli Remolona Jr. on Friday told Bloomberg there is no rush for the local central bank to drastically intervene in foreign exchange through policy rate adjustment.
“There has been a broadly strong dollar, so we don’t feel obliged to intervene. But we want to keep the market orderly,” he said.
The BSP Monetary Board on Thursday kept its policy rate unchanged at 6.5 percent.
“The movements of the peso have been small. But we worry about stress which means large offer sizes and high volatility. If that happens, then we might intervene,” Remolona said.
HSBC said the non-urgency of the BSP has been backed by the country’s ample foreign reserves.
Best track records
“The BSP maintains one of the best track records of defending the currency resolutely and has ample reserves at its disposal. We think markets will have limited appetite to challenge the central bank once they sense a forceful defense,” Jin said.
HSBC added that the BSP will likely cut its policy rate only after the US Federal Reserve (Fed) has loosened its policy to keep inflows of investments to the Philippines, sustain household consumption, and stabilize foreign exchange.
“While the BSP’s rhetoric at its 16 May meeting was unequivocally dovish, HSBC economists do not expect the BSP to cut ahead of the Fed, driven by resilient growth, robust credit demand, various inflationary risks, and concerns over FX stability. We think risks are now clearly skewed towards a more hawkish stance by the BSP, over time,” Jin said.
Benefits OFWs’ families
On one hand, a weaker peso benefits families of overseas Filipinos back home as they gain higher purchasing power.
It is also favorable to domestic entrepreneurs who can export their products at lower prices, attracting demand from foreign consumers.
On the other hand, a depreciating peso makes borrowing through dollar-denominated debt instruments more expensive.
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