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Before Powell’s testimony and the BSP meeting, PH stocks and the peso declined.

LAGUNA – Prior to Federal Reserve Chair Jerome Powell’s appearance before the US Congress on Wednesday night, the main equity index declined on Wednesday and the peso dropped to its lowest level in more than 16 years (Manila time).

To reach 6,168.00 points, the Philippine Stock Exchange index (PSEi) dropped 1.86 percent or 117.19 points.

All Shares fell 40.32 points, or 1.20 percent, to 3,328.35 points after that.

Property lost most of the sectors indices, dropping 3.57 percent.

Services trailed by 1.98 percent, Financials were close behind at 1.53 percent, Holding Companies were at 1.25 percent, Mining and Oil were at 0.82 percent, and Industrial was at 0.04 percent.

905.48 million shares, or PHP4.27 billion, were traded.

At 115 to 68, decliners outnumbered gainers while 48 shares remained unchanged.

As Monday’s stock indices rose and the likelihood of a recession increased, investors continued to evaluate the situation in the US, according to Luis Limlingan, head of sales at Regina Capital Development Corporation (RCDC).

Noting that there are no obvious triggers or news stories fueling the bounce, he added, “Note, however, that some investors have doubts that this bounce will be the one that marks the turn.

On the domestic front, the Monetary Board (MB), which sets interest rates for the Bangko Sentral ng Pilipinas (BSP), will meet on Thursday and is largely anticipated to announce another rate hike after the 25 basis point increase in May.

According to him, Bloomberg expects the BSP to announce a rate increase of 50 basis points, in line with the most recent Federal Reserve decision.

The new BSP governor, Felipe Medalla, “noted the pace of the following tightening may be modest,” the author continued.

The peso’s closing price versus the US dollar was 54.47, its lowest level since Nov. 21, 2005, when it closed at 54.74.

It started the day at 54.3, down from the previous session’s opening price of 54.1.

It fluctuated between 54.635 and 54.3, averaging 54.484.

From USD1.389 billion on Tuesday, volume decreased to USD1.348 billion.

According to Michael Ricarfort, chief economist at Rizal Commercial Banking Corporation (RCBC), the local currency declined “despite the latest declines in global crude oil prices to new one-month lows on concerns over the risk of possible US recession amid more aggressive Fed rate hikes/monetary policy tightening,” he said in response to questions from the Philippine News Agency.

According to Ricafort, another factor influencing currency trading in the local market during the day was the assumption that the BSP’s key rates will climb by at least another 25 basis points on Thursday during the rate-setting meeting of the central bank’s policy-making Monetary Board (MB).

This comes after BSP Governor Benjamin Diokno previously made a suggestion for another increase in the key policy rates of the central bank to assist fight inflation.

He claimed that as long as the domestic economy keeps improving, the BSP’s key interest rates can be raised by the monetary authorities.

According to Ricafort, the PSEi’s drop to its lowest level in nearly 13 months, or since May 24, 2021, also played a role in the peso’s bearish close.

The BSP’s report on the shortfall in the nation’s balance of payments (BOP) position as of February 2021 and the increase in local cases of coronavirus disease 2019 (Covid-19) are further contributing causes.

Despite the significant +0.75 Fed rate hike last week, the signals/reiterations have been for a modest +0.25 rate hike, he continued. “More Fed rate hikes are predicted in the coming months, thereby reducing the interest rate differentials in favor of the US.”

The peso to US dollar exchange rate is set by market forces, according to monetary authorities, and the central bank has little control over it other than to deal with extraordinary volatility.

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