Philippines Macroeconomist/Strategist

Jun Trinidad

FX & Rates

<ul>
<li>August inflation print of 6.4%YoY demanded a lower PHP to recover competitiveness but not by as much as 54. We estimate 53.77 as the ideal PHP adjustment after we account for potential real exchange rate losses arising from a higher-than-expected August inflation.</li>
</ul>
<ul class="">
<li>Facing ‘multiple shocks’ of several origins, BSP decided to undertake stronger measures to cushion PHP’s latest steep fall as well as mitigate PHP’s impact on inflation expectations. BSP’s re-activation of its Currency Risk Protection Program--a hedging mechanism for eligible corporate FX buyers, was among the key initiatives. PHP closed last Friday’s (9/07) session at 53.73 after probing 54 in the morning session.</li>
</ul>
<ul class="">
<li>If 54 is unrealistically weak at this time, where should PHP trade? While seasonal end-year remittance flows can be expected alongside inflation risk stabilizing in 4Q18, it would take unusually strong flows and inflation print narrowing significantly to guarantee PHP’s solid rally to below 53.50. Less uncertainty on the US-China trade front would also support a firmer PHP trading range.</li>
</ul>
<ul>
<li>Lacking strong USD inflows while still missing inflation’s correction, PHP could be stuck between 54 and 53.50 in Sep-Oct. Market sentiment may find some comfort in PHP settling in the range of 53.70-80 until the next PH inflation print materializes or news on US-China trade mitigates EM contagion risk concerns in this part of the world.</li>
</ul>


August inflation print of 6.4%YoY demanded a lower PHP to recover competitiveness but not by as much as 54. We estimate 53.77 as the ideal PHP adjustment after we account for potential real exchange rate losses arising from a higher-than-expected August inflation.


Facing ‘multiple shocks’ of several origins, BSP decided to undertake stronger measures to cushion PHP’s latest steep fall as well as mitigate PHP’s impact on inflation expectations. BSP’s re-activation of its Currency Risk Protection Program--a hedging mechanism for eligible corporate FX buyers, was among the key initiatives. PHP closed last Friday’s (9/07) session at 53.73 after probing 54 in the morning session.


If 54 is unrealistically weak at this time, where should PHP trade? While seasonal end-year remittance flows can be expected alongside inflation risk stabilizing in 4Q18, it would take unusually strong flows and inflation print narrowing significantly to guarantee PHP’s solid rally to below 53.50. Less uncertainty on the US-China trade front would also support a firmer PHP trading range.


Lacking strong USD inflows while still missing inflation’s correction, PHP could be stuck between 54 and 53.50 in Sep-Oct. Market sentiment may find some comfort in PHP settling in the range of 53.70-80 until the next PH inflation print materializes or news on US-China trade mitigates EM contagion risk concerns in this part of the world.


Philippines Stock Exchange PSEi Index (PCOMP INDEX)

PHP

Quo Vadis, PHP?