Economy 6 MIN READ

Yes, depreciation is an inflationary concern

The Banko Sentral ng Pilipinas (BSP) does not target a particular exchange rate. It intervenes to manage volatility and to avoid the inflationary impact of peso depreciation.

August 3, 2022By Anna Isabelle Lejano

Your latest gas expense or your latest monthly electricity bill shows just how prices have gone up. Even when doing grocery runs or eating out in restaurants, you will notice a change in your total bill.

As we have written previously (check our articles on inflation here and here), prices have gone up due to supply chain disruptions in food and energy commodities caused by sanctions and countersanctions in the ongoing conflict between Russia and Ukraine, combined with high demand.

Thus, cost-push inflation has been driving inflation in the Philippines and around the world. Because the country is a major net importer, and because of the limited global supply, we are, in a way, importing high inflation. This has caused Philippine inflation to reach 6.1% in June 2022, the highest since October 2018.

Apart from this obvious supply-side issue, did you know that a depreciating peso can impact inflation? The US Federal Reserve has aggressively tightened monetary policy by raising interest rates to quell rising prices.

Higher US interest rates mean that investors will move their money from peso-denominated assets to dollar-denominated assets. As investors get rid of their pesos in favor of dollars, the peso therefore weakens, making imports more expensive and thereby worsening inflation.

This can be seen in the graphs below, where the soaring global energy prices represented by Brent crude from June 2021 to June 2022 were further aggravated by peso depreciation. Note that there was a 64% increase in the price of Brent crude (in USD/barrel) from June 2021 to June 2022.

There was a 64% jump in the price of oil year-on-year mainly as a result of geopolitical tensions.

On top of this, more pesos were also needed to buy a barrel of said commodity in June 2022, and we can see that this peso depreciation further contributed to inflation, as evidenced in the graph below.

In addition to the 64% increase in global brent crude prices, a weakening of the peso from PHP 48.54 in June 2021 to PHP 55.02 in June 2022 contributed an additional 22% climb in brent crude prices. The total upsurge in prices of said oil commodity in the Philippines reached 86% in June 2022.

The peso depreciation exacerbated the oil price increase.

Policy actions

The BSP also needed to eventually raise policy rates to stabilize prices and the exchange rate. Doing nothing meant the possibility of capital flight due to higher rates of return for US investments (further noting that US investments are preferred than those of the Philippines as the former is seen as a “safe haven”), and dollars would leave the Philippines, thereby depreciating the peso even more.

A recent case in point would be BSP’s off-cycle policy rate hike of 75 basis points (bps) to curb inflation and support the peso amid fears of more aggressive US Fed rate hikes in the face of a continuing US inflation surge.

In essence, we can expect more rate hikes from the BSP to manage inflation and, consequently, lend support to the peso for as long as global inflation continues to escalate and the US maintains its hawkish policy stance.

This was emphasized by the Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla in the Post-SONA Economic Briefing on July 26, 2022, where he signaled further hikes in the coming months.

To sum it up, the ongoing supply-side inflationary pressures have prompted the Fed to hike interest rates, resulting in a weaker peso, which in turn worsens our domestic inflation woes as imports become more expensive. This has triggered the BSP to hike policy rates as well to temper capital outflow, slow down inflation, and prevent the peso from falling further.

ANNA ISABELLE “BEA” LEJANO is a Research & Business Analytics Officer at Metrobank, in charge of the bank’s research on the macroeconomy and the banking industry. She obtained her Bachelor’s degree in Business Economics from the University of the Philippines School of Economics and is currently taking up her Master’s in Economics degree at the Ateneo de Manila University. She cannot function without coffee.

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Rates & Bonds 3 MIN READ

It’s time to take profit on 7- to 10-year peso government securities

If you have taken advantage of the 7- to 10-year bonds last month, you may now take profit to lock in your gains.

August 1, 2022By Patty Membrebe

This article is exclusive to Metrobank preferred clients.

Log in your Wealth Manager account to get access to investment insights, bank views, and webinar videos.

In our previous article about our trade plan titled “Go for the “sweet spot”: Buy 7- to 10-year bonds”, we recommended a tactical buy on 7- to 10-year peso government securities.

Now is an opportune time to take profit. These bonds have seen a significant pick-up in price, with yields lower by around 90 basis points (bps) month-on-month. The recent rally is due to investors’ hefty demand for new, longer-dated bond issuances, in the Bureau of the Treasury (BTr)’s weekly auctions.

Yields may be close to peaking

Although some follow-through buying may still be observed in the near-term, we think that yields in the 7- to 10-year space may be nearing their resistance levels, given the sharp drop in yields in the past few weeks.

If you were one of those who were able to capitalize on the trade plan released the previous month and bought 7-year and 10-year bonds with yields near the 6.75% and 7.20% area, respectively, you may now look into taking profit from your positions and lock-in gains of around 85-95 bps.

Reinstate positions at better levels

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Equities 4 MIN READ

Stock Market Weekly: More sideways trading seen this week

More second quarter 2022 earnings results, the inflation print, the PMI, along with COVID positivity rates and the threat from monkeypox will contribute to sideways trading this week.

August 1, 2022By First Metro Securities Research


The Philippine Stock Exchange index (PSEi) rose 52.54pts (up 0.93% week-on-week) to close at 6,315.93. The PSEi started the week in red amid weaker Asian markets and after BDO Unibank and the Financials sector dragged the index. Stocks rallied from Tuesday to Thursday on the back of the Philippine peso’s strengthening and US Fed Chairman Jerome Powell’s signaling of less-hawkish-than-feared pace of US rate hikes. The Fed hiked rates by 75 basis points (bps) midweek, which was widely expected. On Friday, the PSEi trimmed some of its gains after the Department of Health (DOH) reported the country’s first monkey pox case.

Top index performers were Wilcon Depot (WLCON), up 20.2%), Aboitiz Equity Ventures (AEV), up 8.9%), and International Container Terminal Services (ICT), 6.3%). Index laggards were Converge (CNVRG), down 7.3%, Globe Telecom (GLO), down 5.8%, and Jollibee Foods Corp. (JFC), down 4.5%. The index breadth was positive with 17 gainers versus 13 losers. The average daily turnover value was PHP 4.1 billion. Foreigners were net buyers by PHP 545 million.


The market is expected to trade sideways as investors remain on the sidelines and await the release of more second quarter 2022 earnings results, inflation print, and manufacturing purchasing managers’ index (PMI) for August 2022. The market is seen to be cautious with the uptick in Metro Manila’s COVID-19 positivity rate to 15%, while 14 other provinces had a “very high” positivity rate at above 20%, according to Octa Research. Moreover, the detection of the country’s first case of monkeypox heightened health concerns and may dampen market sentiment.


Manila Electric Company (MER) — BUY

MER recorded a consolidated core net income of PHP 13.1 billion, up 15% y-o-y, in line with consensus estimates on the back of strong energy sales and earnings from the power generation business in the first half of 2022. JG Summit Holdings, Inc. (JGS) offered 30 million shares of MER in a placement at PHP 344.00 per share, a 6% discount from yesterday’s closing price of PHP 366.00. Regarding the block sale, MER’s fundamentals remain intact, and the recent drop is an opportunity to buy. Those looking to enter their first position should accumulate on pullbacks at current levels until PHP 330.00. Set stop limit orders 5-7% below the average price. Take profit at around PHP 390.00/PHP 400.00

Security Bank Corp. (SECB) — BUY ON PULLBACKS

As mentioned in our report last July 8, 2022, Security Bank Corp. (SECB) will be taken out of the Philippine Stock Exchange Index (PSEi) effective August 8, 2022. Expect heavy selling Monday morning and on the close as active funds who track the index sell their SECB holdings within the day. Investors/bargain hunters can set buying levels near the recent low around PHP 86.00-PHP 87.00. After which, set stop limit orders at 5-7% below the average cost and take profit at least 12-15% above the average cost. Resistance levels are around PHP 100.00/PHP 112.00. For long-term investors, our target price for SECB is PHP 118.00.

Integrated Micro-Electronics, Inc. (IMI) — BUY ON BREAKOUT

IMI’s earnings performance will further recover amid the potential easing of supply chain constraints and the gradual recovery of its automotive and industrial segments, especially given the easing of COVID-19-related lockdowns in China. The U.S. Senate voted to advance a bill that would designate USD 52 billion in subsidies and offer an investment tax credit to encourage semiconductor companies to boost manufacturing in the US. The bill would ease the global semiconductor shortage that has been affecting IMI’s margins in the past 12 months. Accumulating IMI once it breaks above PHP 7.00/100-day MA is advisable. Set cut loss below PHP 6.60. Take profit at around PHP 8.00/PHP 9.00.


Resistance: 6,400 / 50-day moving average price (MA)

Support: 5,700 / 6,180

The PSEi once again failed to break above 6,400 last week. The 50-day MA acted as another resistance. Should the market break above 6,400 and the 50-day MA, a retest of the 6,700 will be in play.


Continue setting stop limit orders. Slowly accumulate once the PSEi breaks above the 50-day MA (currently at 6,411).


Monday, August 1, 2022
– Manufacturing PMI for PH (53.8 in June 2022)

Wednesday, August 3, 2022
– Corporate Earnings: SM Investments Corp. (SM)
– Corporate Earnings: Metro Pacific Investments Corp. (MPI)
– Corporate Earnings: Metropolitan Bank and Trust Company (MBT)

Thursday, August 4, 2022
– Philippines’ Consumer Price Index (CPI) year-on-year for July 2022 (consensus estimate: 6.1%, actual: 6.1% in June 2022)
– Corporate Earnings: PLDT, Inc. (TEL)
– Corporate Earnings: International Container Terminal Services, Inc. (ICT)
– Corporate Earnings: San Miguel Corp. (SMC)

Friday, Auguest 5, 2022
– Corporate Earnings: Ayala Land Inc. (ALI)

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