Philippine Peso Weakens to 2-Month Low on Signs of Inflow Curbs

The Philippine peso fell to its lowest level in almost two months as the central bank signaled it is considering additional measures to curb capital inflows that made the currency Asia’s second-best performer last year.

Bangko Sentral ng Pilipinas will soon discuss a plan to ban foreign funds from placing money in its reverse-repurchase facility, Assistant Governor Cyd Amador said in an interview yesterday. The monetary authority last year prohibited overseas investors from its special deposit accounts and lowered the rate on the borrowing facility twice this year.

The peso fell 0.2 percent to 40.85 per dollar at the close in Manila, completing a 0.6 percent drop this week, according to Tullett Prebon Plc. It touched 40.885, the weakest level since Jan. 29. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 11 basis points, or 0.11 percentage point, to 3.63 percent.

“We may see the 41 level soon,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. (RCB) in Manila. “The strong peso view is tapering after the SDA rate cuts, prospects of further reduction and signals that they’re pursuing more measures to address inflows.”

The peso will strengthen to 39.80 per dollar by the end of the year, according to the median estimate of 25 analysts compiled by Bloomberg. A similar survey at the end of last year predicted a gain to 39.50 in 12 months.

Policy Toolkit

Bangko Sentral hasn’t maximized the use of the SDA rate, Governor Amando Tetangco told Bloomberg Television on March 15, a day after he cut the rate to 2.5 percent from 3 percent. and set the rate on all tenors for its reverse repurchase facility at 3.5 percent, same as the benchmark overnight borrowing.The central bank’s policy toolkit can be expanded by adjusting existing measures or introducing new ones if necessary, he said on March 20.

The special accounts hold 1.88 trillion pesos ($46 billion) while the reverse repurchase facility had 279.5 billion pesos as of March 1, latest data show.

The government’s plan to meet all of its 2013 funding requirements locally will help mitigate inflows and lessen the need for additional measures, Deputy Governor Diwa Guinigundo said today. The central bank will encourage companies to also tap the local market for funding, Guinigundo said.

The yield on the 8 percent bond due July 2031 rose four basis points to 3.97 percent, according to Tradition Financial Services.

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

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