Possible relief rally ahead of BSP rate decision

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PHILIPPINE financial markets may experience a rally ahead of the rate hike forecast by the Bangko Sentral ng Pilipinas (BSP) at its policy meeting this week.

The benchmark Philippine Stock Exchange Index (PSEi) fell 61.45 points or 0.96% to close at 6,331.56 on Friday, while the broader all-stock index fell 40, 29 points or 1.17% at 3,394.95.

Week over week, the PSEi fell 198.48 points from its close of 6,530.04 on June 3.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the PSEi fell last week as US and global stock markets fell on rising inflation.

“US stock markets fell amid concerns over more aggressive rate hikes by the Fed in an effort to contain high US inflation, even if it would mean the risk of an economic slowdown or even a recession, in the framework of the Fed’s efforts to bring inflation back to the 2% target,” he added.

China Bank Securities Corp. research director Rastine Mackie D. Mercado said stocks could rebound this week on bargain hunting, but gains are likely to be limited.

“Given the magnitude of the sell-off over the past couple of weeks, we could see a relief rally at some point over the coming week as bargain hunters buy stocks. This could broaden as some underlying index issues have already started their rebound. The upside potential, however, is likely to be modest as investors are likely to get some gains fairly soon after the rebound,” said M. Mercado in an email.

RCBC’s Ricafort said signals from central bank officials about the certainty of another rate hike this week show the economy is already strong enough to cope with higher borrowing costs.

The Monetary Council holds a political meeting on Thursday 23 June. The new head of the BSP and member of the Monetary Council, Felipe M. Medalla, said last week that a rate hike this week was a “sure thing”, with hikes at later meetings also possible.

analysts from a Business world Polls were split on the extent of BSP’s move on Thursday, with nine expecting another 25 basis points (bp) increase and six betting on a 50bp rise.

The BSP kicked off its tightening cycle at its May 19 meeting, raising rates by 25 basis points for the first time since 2018 to stem rising inflation.

“There is a chance of a 50 basis point local policy rate hike at the next rate-setting meeting on June 23 and further local policy rate hikes for the rest of the year, in part to maintain a comfortable interest rate differential with the United States, on behalf of comfortable interest rate differentials. [This] could result in higher borrowing and funding costs for some listed companies, a drag on bottom line earnings and valuations,” Ricafort added.

For the week ahead, Ricafort placed the next PSEi support levels between 6,100 and 6,200 and immediate resistance between 6,550 and 6,600. Luisa Maria Jacinta C. Jocson

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