Peso at P63 sharpens the BSP policy trade-off

From AB Capital's The Opening Bell: Three Moves

Event

The peso closed at a fresh record low of P63.06/US$, down 6.77% YTD, as stronger US inflation reinforced higher-for-longer Fed expectations. Elevated Treasury yields, oil prices and weaker reserves added pressure, with GIR already down to US$99.997 billion by end-September.

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We think the move matters less as a psychological break than through its inflation and policy transmission. A weaker Php raises the local currency cost of fuel, food and other imports, which could prolong already elevated inflation and make it harder for the BSP to look through supply-side shocks while domestic growth remains soft.

Catalyst

The 22 October BSP meeting is the immediate catalyst. Another 25bp hike would provide some support through a wider policy buffer, although sustained Php stabilization still requires softer US yields, lower oil prices or stronger external inflows. Continued dollar strength could keep the currency under pressure despite domestic tightening.

Action

In our view, the setup reinforces a higher-for-longer rates stance and favors dollar earners, exporters and banks with stronger funding franchises. We would remain cautious on import-heavy businesses, discretionary consumption and rate-sensitive sectors, where Php weakness compounds already-high input costs and financing pressure.

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