Philippine Peso: Policy behind curve keeps currency lagging – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad sees the Philippine Peso underperforming its Asian peers after the Bangko Sentral ng Pilipinas (BSP) delivered a third consecutive 25 bps rate hike to 5.00%. Despite the BSP describing the move as preemptive, Haddad argues that policy remains behind the curve as inflation stays above the central bank’s tolerance band, markets price further tightening, and negative real rates continue to weigh on PHP.

Philippine Peso seen underperforming

"Philippine central bank (BSP) delivered a third straight 25bps hike to 5.00%.Most analysts polled by Bloomberg (20 of 25) had an increase penciled in, the rest expected a hold."

"According to the statement, today’s hike was a “preemptive monetary action” against upside price risks from “severe El Niño conditions on agricultural prices” and “potential wage adjustments.”"

"The markets imply nearly 75bps of tightening over the next 12 months, but negative real rates should keep PHP lagging its Asian peers."

"However, with inflation already above the bank’s 4% upper tolerance band, the move looks more reactive than preemptive and leaves policy behind the curve."