Philippine peso slips on weaker-than-expected growth; Thai baht gains

• Philippine peso down as much as 0.4%
• Philippine Q2 GDP grows less than expected
• Thai baht at highest since July 1
• Equities mixed: Philippine shares fall

The Philippine peso eased on Tuesday on smaller-than-expected economic growth in the second quarter, while the Thai baht firmed ahead of a central bank meeting that is expected to kick-start Thailand’s tightening cycle.

South Korea’s won <KRW=KFTC>, Indonesia’s rupiah <IDR=>, the Taiwan dollar <TWD=TP> and the Malaysian ringgit <MYR=> all drifted close to their previous session levels.

The U.S. dollar index <=USD> was flat at 106.35 ahead of inflation data due later in the week.

Analysts at Australia and New Zealand Banking Group <ANZ.AX> expect U.S. core inflation to rise by 0.5% from prior month in July, and headline inflation to tick up by 0.1%.

“A continuation of recent trends would be unwelcomed and likely tilt the Fed toward another substantive rate increase at the 20‑21 September FOMC meeting,” they added.

Regional equities were mixed, with the Philippine benchmark <.PSI> losing 0.3%, while shares in Indonesia <.JKSE>, Malaysia <.KLSE>, South Korea <.KS11> advanced between 0.2% and 0.7%.

The Philippines logged slower-than-expected economic growth of 7.4% in the second quarter, giving the central bank more reason to further tighten monetary policy to curb inflation. The pace of growth was, however, still in line with the official 2022 target.

READ: Philippine GDP grows less than expected in Q2

With inflation near a 4-year high, the market is widely expecting a bigger hike on Aug. 18 by the Bangko Sentral ng Pilipinas (BSP). Analysts at Goldman Sachs, ING and Barclays expect a 50 bps hike by BSP.

The BSP’s 125 basis points (bps) cumulative hike since the start of the year has helped stabilize the peso, which lost more than 6% in the previous quarter. The peso <PHP=> was down as much as 0.4% on Tuesday.

Meanwhile, the Thai baht <THB=TH> appreciated up to 0.4% to 35.420 per dollar, its highest level since July 1. The Bank of Thailand on Wednesday is widely expected to hike its key interest rate by 25 basis points.

“While we doubt the extent of the economic recovery has been sufficient to ease the BoT’s concerns, we think the jump in inflation expectations is likely to force the central bank’s hand,” analysts at Barclays said. They expect a 25 bps hike on Wednesday.

The Indonesian rupiah <IDR=> gained 0.1% as government forecast the economy to grow between 5% and 5.2% in 2022 following better-than-expected growth in the second quarter.

Markets in India <.NSEI>, <INR=IN> and Singapore <.STI> were closed for holiday.

—Reporting by Sameer Manekar in Bengaluru; Editing by Edwina Gibbs