Philippine Peso Set for Worst Week in Nine Months as Stocks Drop

The Philippine peso was headed for its biggest weekly loss in nine months on speculation an improving U.S. economy will prompt the Federal Reserve to rein in monetary stimulus. Bonds and stocks declined.

Bangko Sentral ng Pilipinas is “closely monitoring” any unwinding of stimulus by advanced economies that may lead to outflows, Governor Amando Tetangco told reporters today in Manila. Fed Chairman Ben S. Bernanke said this week the central bank may taper monthly bond buying if it’s confident of sustained economic gains. First-quarter growth in the Philippines was probably on track to meet this year’s goal of 6 percent to 7 percent, Economic Planning Secretary Arsenio Balisacan said before the data is released on May 30.

“We’re seeing some profit-taking in stocks and bonds, in part triggered by speculation on the Fed exit,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “Funds will probably reinstate in a while. We see the momentum in Philippine growth supported during the first quarter.”

The peso dropped 1.1 percent this week to 41.635 per dollar at the noon trading break in Manila, the biggest drop since the five days ended Aug. 17, according to Tullett Prebon Plc. The local currency touched 41.69 yesterday, the weakest since Oct. 2. The peso rose 0.1 percent today.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 88 basis points from yesterday to 5.79 percent. It’s still up 145 basis points, or 1.45 percentage points, for the week.

‘Valuation Issues’

The yield on the government’s 5.875 percent bonds due March 2032 rose 18 basis points this week to this month’s high of 3.93 percent, according to Tradition Financial Services. The Philippine Stock Exchange (PCOMP) Index declined 0.7 percent today, set for a 0.3 percent weekly loss.

Philippine stocks are expensive, Chris Eoyang, managing director for global economics, commodities and strategy research at Goldman Sachs Group Inc. said in Manila yesterday. “Tactically underweight Philippines because of valuation issues,” he said.

Bangko Sentral, in a memo posted on its website this week, said it will limit access to its special-deposit accounts by banning certain types of funds held by trust entities. The central bank reduced the interest rate on $45 billion in the accounts three times this year to 2 percent, while keeping its benchmark overnight rate at a record-low 3.5 percent.

The central bank doesn’t expect a significant reduction in the amount of funds in its special-deposit accounts even after tightening restrictions on access, Tetangco said today. Any outflows from Fed unwinding won’t be massive and the Philippines has monetary tools to cope, he said.

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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