Philippine peso
Image Credit: Gulf News | BSP

Manila: The Philippine peso extended its gains against the US dollar on Monday (November 20), on the back of a mini-rally in local stocks last week. 

The peso appreciated to 0.39 per cent to 55.645 against the US dollar on Monday after rising as much as 0.70 per cent during the last 10-day forex trading sessions.

The peso’s rise in recent days reflects a positive sentiment on the currency, propped up in part by remittances in the runup to Christmas.

The Bangko Sentral ng Pilipinas (BSP)’s hawkish stance on inflation is seen as a key factor in the likelihood for further policy rate increases, say traders.

Despite the BSP keeping rates steady at 6.5 per cent, expectations of potential rate hikes loom due to the BSP's risk-adjusted inflation forecast for 2024, putting pressure on stocks.

The hawkish signals from the BSP are anticipated to continue favouring the peso. A move by the BSP to further raise policy rates, could make the peso more attractive.

For now, capital markets have benefited from eased restrictions and the central bank's decision to maintain interest rates, signalling a moderating inflation outlook.

Stocks down

Philippine stocks were muted on Monday with the index down by 0.45 per cent — it dropped 28.26 points, to close at 6,183.63.

Holding companies were among the top losers, at 1.15 per cent, while the Services sub-index advanced 0.42 per cent. The local shares market surged 2 per cent on Friday (November 17), ending the week with their biggest gain since June.

Interest rate increases generally tend to make government bonds more attractive, raising demand for the local currency, and stocks less attractive to investors.

Forex and stock traders in Manila say the peso will likely benefit from the hawkish signals coming from the BSP.

Goldman Sachs anticipates that Asian central banks, including the BSP, will maintain a proactive approach to uphold foreign exchange stability.

The slight drop in Monday’s Philippine Stock Exchange index appears to be disconnected with the peso's recent ascent.

Among the positive developments contributing to the peso’s rise: downward trend in the global oil prices, hawkishness of the BSP, and higher dollar remittances. 

On Friday, the peso rose by 12 centavos, reaching 55.67 per dollar compared to Thursday's 55.79. Week on week, the peso gained 29 centavos from its November 10 finish at 55.96 pesos.