Philippine Peso Drops by Most in Three Weeks Before Inflow Rule

The Philippine peso fell by the most in almost three weeks before the central bank announces an additional regulation to manage capital inflows.

Bangko Sentral ng Pilipinas will unveil at least one prudential measure before year-end, Governor Amando Tetangco said in a Dec. 14 interview, adding that capital controls won’t be necessary at this stage. U.S. lawmakers said they were losing confidence that Congress and President Barack Obama can reach a deal to prevent more than $600 billion in tax increases and spending cuts from taking effect on Jan. 1.

“There’s risk-off sentiment on the U.S. problems with the fiscal cliff and on the domestic front the peso is affected by concern on the central bank’s measure,” said Radhika Rao, a Singapore-based economist at Forecast Pte. “It’s unlikely that the BSP will do anything harsh, so I don’t think the peso will reverse its appreciating course.”

The peso dropped 0.2 percent to 41.167 per dollar at the close in Manila from Dec. 21, data from Tullett Prebon Plc showed. That was the biggest drop since Dec. 6. The currency touched 41.170, the weakest level since Dec. 14, and has strengthened 6.5 percent this year. Financial markets were shut on Dec. 24 and 25 for public holidays. The peso will advance to 40.8 by the end of the first quarter and to 39.8 by the end of 2013, Rao predicted.

Currency Forwards

One-month implied volatility, a measure of expected moves in exchange rates used to price options, declined 19 basis points to 4.21 percent. It was 7.75 percent at the beginning of the year.

The BSP may announce the new measure today, Deputy Governor Nestor Espenilla said on Dec. 20. The monetary authority banned overseas investors from its special-deposit accounts and ordered lenders to provide more funds to cover risks on non-deliverable currency forwards earlier this year. Plans to further cap the contracts are “under consultation with banks,” Espenilla said.

The Bureau of the Treasury is scheduled to announce the nation’s first-quarter debt auction plan this week, as well as budget figures for November.

Government bonds fell. The yield on the 8 percent notes due July 2031 rose four basis points, or 0.04 percentage point, to 5.58 percent, according to Tradition Financial Services.

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

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

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