Philippine Peso Touches Five-Week Low on Currency Forward Curbs

The Philippine peso fell to a five- week low after the central bank capped banks’ currency-forward positions to restrain its advance. Government bonds gained.

The limit for non-deliverable currency forwards at local lenders is 20 percent of capital, and 100 percent for foreign banks, Governor Amando Tetangco said in a briefing in Manila after the markets had closed yesterday. Lenders have two months to comply with the regulation, which will be reviewed after six months, he said. The peso has rallied 6.4 percent against the dollar this year, the second-best performance among Asia’s 11 most-traded currencies.

“The new policy puts pressure on the currency market and we will probably see some dollar outflows in the coming weeks,” said Alan Cayetano, head of foreign-exchange trading at Bank of the Philippine Islands in Manila, the nation’s biggest lender by market value. “Remittance flows are starting to slow around this time.”

The peso declined 0.1 percent to 41.19 per dollar at the noon trading break in Manila, data from Tullett Prebon Plc showed. It touched 41.25, the weakest level since Nov. 19. The peso may fall to 42 early next year as banks unwind their forward positions, Cayetano forecast. One-month implied volatility, which measures exchange-rate swings used to price options, rose 19 basis points, to 4.4 percent.

Earlier this year, the central bank ordered lenders to provide more funds to cover risks on forward transactions and banned overseas investors from its special-deposit accounts.

The government reported today that it had a budget deficit of 11.6 billion pesos ($282 million) in November. That took the 11-month shortfall to 127.3 billion, which is less than half of the full-year ceiling.

The Bureau of the Treasury will auction 120 billion pesos of bonds in the three months through March, compared with 90 billion pesos this quarter, it said in a statement today.

The yield on the 10.125 percent notes due December 2015 fell 14 basis points, or 0.14 percentage point, to 3.72 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp.

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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