Philippine Peso: Policy behind curve keeps currency lagging – BBH

The Philippine Peso (PHP) continues to lag behind its Asian counterparts according to Brown Brothers Harriman’s (BBH) Elias Haddad, who attributes this underperformance to the Bangko Sentral ng Pilipinas (BSP) delivering a third consecutive 25 basis points (bps) rate hike to 5.00%. Despite BSP's description of the move as preemptive, Haddad believes policy remains behind the curve due to inflation staying above the central bank’s tolerance band, markets pricing further tightening, and negative real rates continuing to weigh on PHP.

The majority of polled analysts expected a rate increase, with only a few anticipating a hold; however, the markets anticipate roughly 75bps of tightening over the next 12 months. The hike was described as "preemptive monetary action" against upside price risks stemming from severe El Niño conditions on agricultural prices and potential wage adjustments.

With inflation exceeding the bank’s 4% upper tolerance band, the move may be more reactive than preemptive, further highlighting the lag between policy and economic realities.