The Philippine peso (CURRENCY:PHP) was firmer on Thursday as the central bank opted to keep interest rates on hold.
Exchange rate markets did however view the PHP favourably on news that Moody’s has upgraded the Philippines sovereign rating to Baa2 stable.
Bangko Sentral ng Pilipinas kept its policy rate unchanged at 4.00%.
This was in line with both consensus and our view. It also left SDA rates at 2.50%. (Watch the press conference here).
The BSP is also turning neutral in its assessment of monetary conditions, amid falling inflation and sluggish growth.
Post the meeting, Governor Tetangco indicated that the inflation path will be tempered due to lower commodity prices.
He also indicated that the global conditions remain challenging. The central bank’s inflation forecasts were also lowered, to 4.2% in 2014 (previously: 4.4%), and 3.0% for 2015 (previously: 3.7%).
Commenting on the move is Rahul Bajoria at Barclays:
“We view the tone of the BSP's latest commentary as neutral, marking a continuation from the meeting in October.
“With a lower inflation profile and stable growth momentum, the BSP appears unlikely to further tighten monetary conditions, especially given the recently weak growth prints.
“We recently pushed back our forecast of further monetary tightening to Q4 15, after when the Fed is expected to have started raising rates.”
Moody's upgraded Philippines to Baa2 Stable from Baa3 Positive.
The agency cited debt reduction, fiscal improvements, a favourble growth trajectory and limited vulnerability to EM risks as the key drivers for the action. We believe most onshore investors were expecting this upgrade.
“We believe the ratings upgrade will not have a material impact on spreads, and we maintain our underweight view on ROP bonds,” says Bajoria.