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BENGALURU (Dec 15): Most Asian emerging currencies weakened against the US dollar on Thursday as the Federal Reserve warned of prolonged rate hikes, while the Philippine peso remained largely unchanged after the central bank raised rates by a widely expected half-a-percentage.
The peso’s gain stayed firm at 0.14% by 0718 GMT, and was the outlier among its Southeast Asian peers.
The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate for the seventh time this year by 50 basis points (bps) to 5.5%, in line with market expectations, and suggested more tightening could follow next year.
The central bank also raised its average 2023 inflation forecast to 4.5% from a previous projection of 4.3%, although it cut the average outlook for 2024 to 2.8% from 3.1%.
The BSP would lean towards additional interest rate hikes by a smaller 25bps in February and March next year, Raul P Ruiz, president at RCBC Securities, said, adding that a narrowing trade deficit and lower crude oil prices would cushion a more stable peso.
“The peso will likely trade sideways between the 55-56 band until the end of this year, supported by the seasonally strong USD inflows in the fourth quarter and BSP’s 50bps policy rate hike,” Ruiz said.
The BSP will match any action by the Fed next year, given the upside risks to inflation, Nicholas Mapa, a senior economist at ING, pointed out.
Meanwhile, equities in Manila shed 0.8% and were on track for their worst session in over one week.
Highlighting that BSP’s rate hikes would eventually turn out to be good for the equities market, Ruiz said the Philippine stock exchange, currently trading at 6,556.68 points, “may end 2023 at around 8,000 (points)”.
Other regional currencies remained subdued on strength in the US dollar as the Fed forecast more interest rate hikes next year and kept a hawkish tone, after delivering a widely expected half-a-percentage point rise in borrowing costs to curb inflation.
The Indonesian rupiah and Singapore dollar each depreciated 0.2%, while Thailand’s baht weakened 0.8% and the Malaysian ringgit slipped 0.3%.      
Against a basket of currencies, the US dollar index was last 0.2% higher at 103.85.
In other news, India’s quarterly current account deficit likely rose to its highest in nearly a decade on the back of elevated commodity prices and a weak rupee, a Reuters poll of economists found.
With India’s central bank nearing the end of its rate hike cycle the rupee, down nearly 10% this year, is unlikely to recoup its losses anytime soon, per some economists.
Separately, Indonesia’s parliament passed into law a bilateral extradition agreement with Singapore to help authorities bring to justice people accused of stashing offshore billions of dollars of state money.
Equities in the region were largely trading lower with those in Kuala Lumpur, Thailand and Mumbai each shedding between 0.5% and 1%.
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