Manila: A sense of caution is gripping peso bulls as markets approach the Philippine central bank’s interest-rate decision.
Increased speculation that the Bangko Sentral ng Pilipinas (BSP) will ease monetary policy is threatening to break the peso’s Asia-beating rally this quarter.
A reduction in the benchmark rate could give foreign investors — who already don’t seem too keen on buying Philippine bonds — a reason to sell local debt.
A rate cut “will likely see a corresponding correction in local bond yields — which in turn would limit gains from carry trade as interest-rate differentials tighten,” said Nicholas Mapa, a senior economist at ING Groep NV in Manila.
“A possible reversal in BSP’s stance is likely to see the rally fade, with the peso expected to move back to middle of the pack” in Asia, he said.
The risk of bond outflows, along with headwinds from rising oil prices and a seasonally strong dollar, are seen reversing the peso’s 1.3 percent advance against the greenback this quarter, with ING predicting it will weaken to 53.18 per dollar by end-June.
Foreigners bought a net $3.9 billion of peso bonds in 2018 — a record in Bloomberg-compiled data going back to 2000 — as the BSP hiked rates by 175 basis points.