Forex - Philippines Flows: USD/PHP steady after returning from the 1 day holiday; banks adjust lending rates after BSP hike last month

Published at 04:01 (GMT) 22 Aug

Banks have started to adjust their lending rates following the Bangko Sentral ng Pilipinas' decision to raise key policy rates last month. BSP Gov Tetangco. said the hike in the overnight borrowing and overnight lending rates announced last July 31 has started creeping into the domestic banks' interest rates. "We are seeing some signs that banks are beginning to adjust rates. For instance, you may have noticed that the number of ads put out for very aggressive low interest rates on consumer loans have declined," Tetangco said. "But how fast banks would make adjustments is really a business decision that would depend on bank to bank, " Tetangco added. Monetary authorities during their most recent policy meeting increased key rates to anchor inflation expectations as the target range for 2015 came at risk of being breached. The central bank cited pressures coming from the soaring food prices, the volatility in international oil prices, and the pending adjustments in power rates and transportation fares (Philstar).

Focus on Sep BSP MPC where we expect the central bank to raise overnight rate by 25bps, bringing it to 4.0%. Recently, flagging supply side pressures, the central bank commented that it will be more vigilant on inflation pressures. Dep. Gov Guinigundo said that port congestion and power rates were the supply side pressure and if second round effects were observed then BSP would appropriately adjust policy.

On FX, onshore markets returned from the one day break. USD/PHP steady around 43.800 mark so far this morning. Unlikely that big swings will be seen in the USD/PHP into the weekend as the market focus is on the Yellen speech at the Jackson Hole tonight. PSEi inched higher gaining 0.6% to touch fresh 15-m highs of 7141.17. BB