Philippine Stock Exchange (PSE) surges to record high after sovereigns rise to investment grade
Fitch Ratings upgraded the Philippines’ Foreign Current Issuer Default Rating (IDR) to ‘BBB-’ from ‘BB+’, an investment grade according to its ranking system. Besides that, the Long-Term Local Currency IDR has been upgraded to ‘BBB’ from ‘BBB-’.
According to studies from Fitch, the Philippines’ sovereign external balance sheet is considered relatively strong with a consistent current account surplus, mainly underpinned by remittance inflows. In my point of view, the U.S. Quantitative Easing (QE) program played a large part here. Remittance inflows were worth 8% of Gross Domestic Product (GDP) last year and proved resilient, even through the unstable global crisis in the Euro Zone.Source: Bloomberg, FXPRIMUS Click the image to enlarge
The PSE climbed to 463 yesterday after Fitch’s upgrade. Its market is closed today for the Good Friday holiday, together with many other Asian countries.Source: Bloomberg, FXPRIMUS Click the image to enlarge
Policy makers in the Philippines are set to act further prudently in their monetary policy; curbing inflow to prevent asset bubbles becomes more necessary now, as well as lowering the unemployment rate.
Since beginning of the year, Bangko Sentral ng Pilipinas (BSP) lowered the Special Deposit Accounts (SDA) rate twice to 3%, which is lower than its benchmark interest rate, and capped lenders’ currency forward positions. Moving forward, its central bank could provide investors easier access to the foreign exchange market by encouraging outflow, as well as curbing inflation. Consumer Price Index (CPI) surged to 3.4% YoY from the 2.8% in January, and the central bank targets the inflation band between 3-5% this year.Source: Bloomberg, FXPRIMUS Click the image to enlarge
USDPHP – Coming support at 40.530
Given the possible further monetary policy implicated by the Philippine central bank, the Peso’s upside might be capped. However, further risk could be continuous easing from western central banks, given that the global economy remains vulnerable, especially with the contagion from the Euro Zone.
From the technical analysis perspective, the USDPHP’s coming support stands at around 40.530.Source: Bloomberg Click the image to enlarge
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