Medalla tames peso

The Philippine peso is back below 56:$1 after staying above the threshold in 11 out of 13 previous trading days, and has shed its status as worst-performing currency in the region.

This happened following the Bangko Sentral ng Pilipinas’ (BSP) surprise policy rate hike two weeks ago and after BSP Governor Felipe Medalla’s statement on Tuesday about another increase in August.

On July 26, the peso closed spot trading at 55.30:$1, having ranged between 55.29 and 55.88 that day. The next day, July 27, the peso closed at 55.68:$1 after ranging between 55.37 and 55.82

The local currency first broke through the 56:$1 threshold on 56.06:$1 last July 7 but appreciated to the 55.90s in the following two trading days.

Then the peso approached its weakest position against the US dollar—56.45 that was reached in 2004—at 56.37 on July 12 and lingering above 56:$1 until closing at 56.10:$1 on July 25.

On July 14, the Monetary Board announced an off-cycle increase of 0.75 percentage point to bring the BSP’s overnight borrowing rate to 3.25 percent.

According to Bank of the Philippine Islands lead economist Emilio Neri Jr., this resulted in the peso being no longer Asia’s worst-performing currency.

Neri said further increases that would bring the BSP policy rate to 4.25 percent should bring the peso back in the midfield of Asia’s foreign exchange markets.

“This may also help re-anchor inflationary expectations and limit second round effects through the second semester of 2022” he said, referring to rising wages and transportation costs.

ING Bank said in a commentary the peso outperformed its regional peers on Tuesday and enjoyed the sharpest single day correction in eight years.

The bank that is based in The Netherlands said comments from Medalla solidified further tightening from BSP at the policy meeting on Aug. 18.

“The [peso] will likely move sideways ahead of the Fed (United States Federal Reserve) meeting as investors look for cues from [the American central bank’s] decision,” ING Bank said.