Philippine Peso Has Worst Month Since May 2010 on Europe Concern

The Philippine peso fell, completing its worst month since May 2010, as Europe’s debt crisis hurt demand for emerging-market assets and the central bank signaled curbs against speculation.

The currency weakened in each of the past four weeks as investors pulled a total $5.5 billion this month from equities in the Philippines, India, Indonesia, South Korea, Thailand and Taiwan, according to exchange data. Bangko Sentral ng Pilipinas will likely raise the capital charge on non-deliverable peso forwards and doesn’t favor “speculative” inflows, Governor Amando Tetangco said at a government economic briefing in Manila.

“It was risk-off mode for most of the month on apprehension over Europe’s sovereign credit,” said Roland Avante, treasurer at Sterling Bank of Asia in Manila. “The central bank’s move to temper speculative flows via NDFs also contributed” to the peso’s weakness this month, he said.

The peso dropped 0.3 percent to 43.735 per dollar at the 4 p.m. close of trading in Manila, taking the month’s loss to 3.3 percent, according to Tullett Prebon Plc. It touched 43.95 on Sept. 23, the weakest level since March 17. The currency, which fell as much as 0.6 percent earlier today, declined 0.9 percent since June in the first drop in five quarters.

About three-quarters of 1,031 investors, analysts and traders said the euro-area economy will fall into recession during the next 12 months, according to a Bloomberg quarterly Global Poll published yesterday.

Temporary Volatility

Volatility in emerging markets is “temporary” and the Philippines, along with the region, will attract more capital “when the dust settles,” Tetangco said today. Local banks’ exposure to Europe declined to 1.4 percent of assets from a 2.9 percent ratio in January 2010, he said.

The monetary authority “has participated” in the foreign- exchange market to curb volatility, the governor said. It has solicited comments on a plan to impose a 187.5 percent market risk weight on NDFs, according to a draft obtained by Bloomberg News earlier this month.

The peso may rebound by the year-end to between 42.50 and 43, supported by remittances from abroad, Avante predicted, lowering an earlier estimate for 42 to 42.50.

The yield on the 6.5 percent April 2021 bond rose 30 basis points, or 0.30 percentage point, this month to 6.227 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. The rate, which fell to a record 5.65 percent on Sept. 14, declined five basis points today.

The Philippines has “fiscal space” to stimulate the economy, Finance Secretary Cesar Purisima said in today’s briefing. The government had a budget surplus of 9.22 billion pesos ($210 million) in August, narrowing the eight-month shortfall to 34.5 billion pesos, a report showed last week.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.