Philippine Peso, Bonds Fall on Concern of More Capital Controls

The Philippine peso and 10-year bonds declined on speculation the central bank will unveil more measures to manage capital flows after imposing limits on currency forward positions last year.

Bangko Sentral ng Pilipinas is studying expanding reserve requirements on banks’ trust products as it seeks to avert asset bubbles, Assistant Governor Cyd Amador said on Jan. 18 after markets closed. Overseas investment in stocks and bonds reached $18.5 billion in 2012, the most in 10 years, and 12 percent higher than a year earlier, BSP reported on Jan. 17.

“The central bank appears not to be done with the measures yet,” said Raul Tan, head of the balance-sheet segment at Rizal Commercial Banking Corp.’s Treasury Group in Manila.

The peso fell 0.2 percent to 40.638 per dollar as of 10:55 a.m. in Manila, snapping a two-day gain, according to prices from Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, held at 4 percent.

The yield on the 6.375 percent government notes due January 2022 rose eight basis points, or 0.08 percentage point, to 4.375 percent, according to Tradition Financial Services.

Rapid capital inflows that spurred peso gains may stoke inflation, Governor Amando Tetangco said on Jan. 15, a day after the exchange rate climbed to 40.550 per dollar, the highest level since March 2008. The currency has strengthened 0.9 percent so far this year, adding to a 6.8 percent advance in 2012 that was the biggest since 2007.

Currency Controls

The Philippines joined South Korea last month in clamping down on currency-forward positions, imposing ceilings on non- deliverable contracts at 20 percent of capital for local lenders and 100 percent for foreign entities. At the start of 2012, it ordered banks to provide more funds to cover risks on those hedges, and in July banned foreign investors from special- deposit accounts to limit inflows.

Banks already provide reserves for some trust products such as common trusts and unit investment trust funds, Amador said. Philippine lenders currently set aside 18 centavos for every peso deposited, or an 18 percent reserve ratio.

BSP will keep its overnight borrowing rate at a record low 3.5 percent on Jan. 24, according to all 19 economists in a Bloomberg News survey. It cut the rate four times last year.

To contact the reporter on this story: Clarissa Batino at

To contact the editor responsible for this story: James Regan at

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