The last-minute bailout deal between Greece and the European Union (EU) has reduced uncertainty for the global financial markets, reviving risk appetite and drawing investor focus again to a possible US rate hike before the end of the third quarter this year.
Investors have begun shifting money to the US dollar to take advantage of the growing strength of the US currency. At the end of Tuesday’s trade on the Philippine Dealing System, the peso stood at P45.195 to the dollar, weakening from Monday’s close at P45.160.
“This morning we saw a strong dollar and the other side of that, there’s some weakening of regional currencies, including the peso. The strength of the US dollar this morning [is because]people are again expecting that the Fed will increase interest rates sometime this year. The dominant view is that perhaps this September,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters on Tuesday.
On Monday, Greece reached a desperately needed bailout deal with the eurozone in a historic agreement to prevent the country from crashing out of the European single currency union.
Greek Prime Minister Alexis Tsipras agreed to tough reforms after 17 hours of grueling negotiations in return for a three-year bailout worth up to 86 billion euros ($96 billion), the country’s third rescue program in five years.
Tetangco Jr. said the Greek agreement with the EU forestalling a “Grexit”’ takes away one layer of market uncertainty.
“So far, Greece has been able to repay its samurai bonds so that’s positive for the market,” he told reporters on the sidelines of the 2015 Awards Ceremony and Appreciation Lunch for BSP Stakeholders.
Tetangco noted there is still a lot to be done to address Greece’s situation in the eurozone, including the passage of the Greece-EU debt agreement through the respective parliaments of the EU member countries.
“The market will continue, however, to watch out for the details to implement this deal,” he said.
Above all this, however, the bailout deal has renewed investor focus on the possible rate hike by the US Fed this year.
A US rate hike stood among other factors such as China’s economic slowdown and the Greek debt crisis cited by the BSP as “external headwinds” against which its fiscal and monetary tools are ready to strike.
The central bank assured the Philippine financial markets over the weekend that it would use tools other than monetary policy to deal at once with any external headwinds to cushion their impact on the Philippine economy.
Reiterating that its policy stance remains anchored on its inflation outlook, the BSP said it continues to believe that the Philippine macroeconomic fundamentals remain sound despite the expected further weakness in financial markets.
“Our economy has fundamental strength. Inflation is seen remaining low. Pockets of potential financial stability pressures also appear to be relatively mild. But we have policy space and can quickly put in place measures should such be needed to support growth, manage inflation or contain financial stability pressures,” Tetangco added.