BSP signs of little appetite for rate cuts

The central bank of Philippines kept its policy rate unchanged at 4.00%. This was in line with both consensus and the fifth straight on hold decision. It also left SDA rates at 2.50%.

The BSP (Bangko Sentral ng Pilipinas) also signaled little appetite for any easing in the policy stance, with Governor Tetangco pointing to ample liquidity, government spending as supporting growth, and deputy governor Guinigundo stated clearly that "the economy doesn't need additional support at this point".

We gauge the tone of the commentary as suggesting some eagerness to ease policy and expect the next policy decision to be a hike. The growth viewpoint remains robust we expect growth of 6.5% in 2015 supported by a booming BPO sector, while the Philippines should be a significant beneficiary of the fall in oil prices. Philippines exports factor in liberalized port operations.

Philippine's currency has traded sideways against the Japanese yen in Q1. Although intraday perspectives suggesting some shorting avenues we perceive near future rallies would be sideways as there are no substantial confirmations seen on both daily and weekly charting patterns.

Hedging Positions:

Option strategy: Long Strangle (PHPJPY & USDPHP)

Because we perceive the trend in PHPJPY & USDPHP is largely non directional we would recommend long term overseas traders to go long on strangles. But for intraday and short term purposes we can see shorting opportunities.

How to execute the strategy: Buying an OTM Call and an OTM Put creates this position.

It costs lesser than Long Straddle but requires an even greater move in the underlying currency on either direction.

Establish the position with as much time to expiration as possible to give the underlying pair enough time to make a large move and reduce the effect of time decay.

Best to use this strategy before a specific event that will move the underlying in a large way in either direction like earnings, litigation decision, economic data etc or when the price is expected to breakout from a consolidation pattern.