MANILA, Philippines – The peso appreciated on Wednesday, buoyed by the overall outlook of rising yields on portfolio instruments in Asia Pacific, which was anchored on hints that other central banks in the region might soon raise interest rates.
The local currency closed at 43.48 against the US dollar on Wednesday, up by 9 centavos from the previous day’s finish of 43.57:$1.
Intraday high hit 43.46:$1, while intraday low settled at 43.53:$1. Volume of trade inched up to $862.9 million from $829.63 million previously.
Traders said the central banks of South Korea and Taiwan were some of those seen to implement another rate hike in the next few days in an attempt to prevent inflation from speeding up.
In the case of the Philippines, the Bangko Sentral ng Pilipinas has increased its key policy rates by 50 basis points this year. Its overnight borrowing and lending rates now stand at 4.5 and 6.5 percent, respectively.
Some capital market players expect the BSP to do another rate hike later in the year.
Raising interest rates is one of the main tools used by central banks to curb increase in consumer prices. Higher interest rates are seen to dampen demand for bank loans, thereby tempering growth in consumption and inflation.
While the intention of rate hikes is to ease inflation, another consequence is increase in yields of portfolio instruments. As such, investors are usually enticed to buy more portfolio assets if they think central banks would increase interest rates.