— Three pressures beyond just interest rate hikes
In the fourth week of April 2026, the Philippine Stock Exchange Index (PSEi) ended the week lower.
It closed at
5,943.49 (−0.67% week-on-week).
At first glance, this may appear to be a routine correction. However, the underlying dynamics suggest something more complex.
This was not driven by a single factor, but by multiple pressures occurring simultaneously.
What happened this week
The key drivers can be summarised as follows:
- The Bangko Sentral ng Pilipinas (BSP) raised policy rates by 25 basis points (to 4.5%)
- Inflation expectations rose to 6.3%
- Oil prices climbed to around USD 100 amid Middle East tensions
What matters here is not each factor individually, but the fact that they occurred at the same time.
Not simply “rate hikes equal lower equities”
It is often said that higher interest rates lead to lower equity prices.
While this is broadly true, it is insufficient to explain the current situation.
What the market is reacting to includes:
- Higher borrowing costs
- Concerns over economic slowdown
- Currency depreciation
- Foreign capital outflows
In other words, financial conditions, the real economy, and the currency are all deteriorating simultaneously.
Why banking stocks led the decline
The financial sector recorded the largest losses this week.
At first glance, this may seem counterintuitive, as higher interest rates can improve banks’ margins.
However, markets tend to focus on risk rather than accounting gains.
Key concerns include:
- Weaker loan demand
- Reduced repayment capacity
- Rising non-performing loan risks
As a result, the increase in credit risk outweighed any benefit from wider margins.
Structural vulnerability of the Philippine economy
This episode also highlights a structural issue.
- Heavy dependence on imported energy
- Oil price increases feed directly into inflation
- The peso remains sensitive to external shocks
The exchange rate weakened to around 60.7 PHP per USD.
This suggests that external shocks transmit quickly into both inflation and financial markets.
Limits of monetary policy
One notable feature is that the currency weakened despite the rate hike.
Under normal conditions:
higher rates → stronger currency
In this case:
higher rates → weaker currency
This indicates that external factors—particularly oil prices and geopolitical risks—are dominating domestic monetary policy.
Investor behaviour
Market behaviour this week reflects risk aversion rather than aggressive selling.
- Trading volumes remained subdued
- Decliners outnumbered advancers
- Foreign investors recorded net outflows
This suggests that investors are not only selling, but also refraining from entering the market.
What to watch next
In the short term, the market is likely to remain weak or range-bound.
Two factors will be critical:
- The trajectory of oil prices
- Whether inflation peaks
If either stabilises, the market may recover.
If both deteriorate, further downside remains possible.
Conclusion
The recent decline in the PSEi cannot be attributed to interest rate hikes alone.
- Monetary tightening
- Rising inflation
- External geopolitical risks
These forces combined to create a multi-layered adjustment.
More importantly, there is little indication that these pressures have fully dissipated.
The market remains in a cautious phase, awaiting clearer signals on both inflation and global risk conditions.
Reference
PSEi extends slump on rate hike, inflation fears
Stocks, peso end week down on Middle East worries, BSP rate decision