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Nearly unchanged stock index, strengthening peso following BSP rate increase

The Bangko Sentral ng Pilipinas (BSP) unexpectedly raised its key rates by 75 basis points on Thursday, which allowed the peso to rally to a 55-level mid-trade while the main index of the local stock exchange finished practically flat.

The PSEi, which measures performance on the Philippine Stock Exchange, dropped 7.24 points, or 0.12%, to 6,248.13 points.

To reach 3,367.00 points, All Shares dropped by 0.22 percent, or 7.57 points.

The majority of sectoral indices—Property, 1.24 percent; Holding Firms, 0.70 percent; Mining and Oil, 0.41 percent; and Industrial, 0.26 percent—also finished the day in the red.

However, Financials increased by 1.69 percent, while Services increased by 0.03 percent.

There were only 680.44 million shares traded, or PHP5.3 billion, in the thin volume.

At 124 to 69, decliners outnumbered advancers while 34 shares remained unchanged.

The main index was supported by the BSP rate increase that occurred during the day, according to Luis Limlingan, head of sales at Regina Capital Development Corporation (RCDC).

According to Limlingan, “as analysts grow concerned about the implications of a US recession,” the PSEi was down more than 1% for a significant portion of trading.

This comes after the US revealed Wednesday night (Philippine time) that the consumer price index (CPI) increased again in June, rising to 9.1%, the highest level since 1981 and exceeding the consensus estimate of roughly 8.8%.

He claimed that this development prompted “fears that the Federal Reserve will have to hike interest rates more aggressively in the coming months to reduce price increases.”

Additionally, he continued, “the Beige Book, released by the Fed on Wednesday, revealed worries of an impending recession amid strong inflation.”

The Fed Funds Rate has been raised 150 basis points in total so far: 25 basis points in March last year, 50 basis points in May, and 75 basis points in June.

Similar to this, this year’s BSP key rates have climbed by 150 basis points.

Aside from the 75 basis point rate increase during the day, the Monetary Board (MB), which sets policy for the central bank, raised the BSP’s main rates by 25 basis points in May and by 50 basis points in June of last year.

The local currency increased in value relative to the US dollar throughout this time, closing the session at 56.15 versus 56.26 on Wednesday.

It traded between 55.98 and 56.45 and started the day at 56.3.

For the day, the average level was 56.242.

Volume increased to USD1.66 billion from the previous session’s USD994 million.

In response to inquiries from the Philippine News Agency, Michael Ricafort, chief economist of Rizal Commercial Banking Corporation (RCBC), stated that he anticipates the peso to stabilize following the most recent BSP rate drop.

According to the most recent significant unexpected surprise 0.75 local policy rate increase, it appears that the 56.45 record high/resistance would be respected for the time being.

Regarding the seasonal rise in imports during the third quarter of the year leading up to the Christmas season, Ricafort said the most recent BSP rate decision “could help support or at least stabilize the peso exchange rate.”

The predicted seasonal boost in OFW (overseas Filipino workers) remittances (and) export sales revenues over the Christmas season, he continued, “may, however, strengthen the peso in 4Q (fourth quarter)”.

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