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Quick Take: The peso's P10-B defense against the dollar and 2 more market updates

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Merkado Barkada

October 24, 2022 | 9:00am

Department of Finance (DoF) says it will use P10-B to avoid breach of P60/$1 “psychological level”. DoF Secretary, Benjamin Diokno, said that the Bangko Sentral ng Pilipinas (BSP) would use $10 billion of its “Gross International Reserves” to prevent the peso’s value from falling through the P60:$1 barrier, which the government considers to be a “psychological” level that it must “defend”, as directed by the President. Secretary Diokno added that the BSP would “probably consider” 100 basis points of additional rate hikes in the BSP’s final two meetings of the year.

MB Quick Take: While Mr. Diokno is still a member of the BSP’s monetary board, some of what he’s saying here is somewhat out of pocket for a DoF secretary. The currency market intervention and rate hikes might have been the direct purview of Mr. Diokno when he was the BSP Governor during the previous administration, but Felipe Medalla is the governor now, and the BSP operates independent of the DoF’s chain of command. That said, the distinction might only be academic on this point, as it doesn’t seem like Mr. Diokno or Mr. Medalla differ in their intended approach to solving the currency problem. Mr. Medalla talked about 100 bp of rate hikes first, before Mr. Diokno, and while he hasn’t spoken publicly about the BSP’s intervention in the open currency market, he did say previously that the peso’s weakness “threatens” the government’s inflation outlook . So I don’t expect the BSP and DoF to be in conflict on either point.

Metro Pacific [MPI 3.61 3.14%] noted that the Supreme Court affirmed a ruling that held Maynilad, an MPI associate company, was in violation of the Clean Water Act (CWA). Maynilad has been instructed to pay P202 million in fines, which MPI said was a “significant reduction” from the original fine. The Supreme Court reduced Maynilad’s fine based on the court’s assessment that Maynilad had exerted “good faith and real efforts to comply with [the CWA]”.

MB Quick Take: This is like when a bank sets aside a huge chunk of money as provisions for bad loans, only to find out that the actual amount of bad loans was just 25% of that huge chunk. Technically, it’s a W to pay less than expected, but realistically it’s still an L to be paying a considerable fraction of a “huge chunk of money” in fines. Still, the issue is resolved, the fines will be paid.

Manila Water [MWC 15.50 1.31%] confirmed reports that it planned to spend P181 billion over the next five years, but clarified that P105 billion would be for capex related to water and wastewater projects, and P76 billion would be for “operations expenditure”. MWC said that the spending was in line with the “service improvement plan” that it submitted to its regulating body, the Metropolitan Waterworks and Sewerage System.

MB Quick Take: The water concessionaires have been under pressure to uphold their end of the bargain under the Clean Water Act (CWA). Both MWC and Maynilad (owned by Metro Pacific [MPI 3.61 3.14%] and DMCI [DMC 10.46 0.38%]) just recently had liability affirmed by the Supreme Court for violations of the CWA, so this increased spend is part of that catch-up, as is MWC’s plans to build 12 more sewage treatment plants.

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Merkado Barkada’s opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.