Philippine Peso Drops to Two-Month Low as Markets Play Catch-Up

The Philippine peso fell the most in two months as stocks and bonds tumbled after local markets reopened following floods and a holiday.

The benchmark equities gauge dropped the most since June 13, tracking declines in other Asian markets this week, on signs the Federal Reserve will taper stimulus this year. Bangko Sentral ng Pilipinas will assess whether the peso’s movement is excessive and authorities will “act accordingly” to curb volatility, Governor Amando Tetangco said in an e-mail yesterday. Local financial markets have been shut all week.

“Markets overreact all the time but investors should see the difference,” said Antonio Paner, executive vice president and treasurer at Bank of the Philippine Islands (BPI) in Manila, referring to the country’s fast-growing economy. “If you look at the fundamentals, people will still see some value in the Philippines.”

The peso fell 1.1 percent to 44.167 per dollar, its lowest closing rate since February 2011, according to Tullett Prebon Plc. It touched 44.17 earlier, the weakest since June 21. The currency will probably trade around 44 in the near term before returning to the 43 level, Paner said. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 15 basis points to 7 percent.

The yield on the 5.875 percent bonds due March 2032 rose 70 basis points, or 0.7 percentage point, to 5.25 percent, the highest level July 10, according to Tradition Financial Services. That’s the biggest increase since the securities were first issued in February 2012.

Fast Growth

The $250 billion Asian economy probably expanded 6.9 percent in the three months through June, according to the median estimate of economists in a Bloomberg survey before a report due Aug. 29. Gross domestic product increased 7.8 percent in the first quarter, outpacing China to become the fastest in the region.

The Federal Reserve will probably reduce its $85 billion monthly bond purchases in its September meeting, according to 65 percent of economists surveyed by Bloomberg Aug. 9-13.

“Should peso and dollar liquidity becomes tight, which may be unlikely given the robust growth of domestic credit and M3, the BSP enjoys monetary flexibility to consider a more accommodative monetary policy,” Deputy Governor Diwa Guinigundo wrote in an e-mailed reply to questions yesterday. “We can always adjust our rediscounting budget both for peso and dollar-yen to ensure the availability of liquidity should it be necessary.”

President Benigno Aquino suspended government work on Aug. 19 and 20 as monsoon rains flooded as much as 60 percent of the Manila region, killing at least 16. The central bank’s Tetangco said any impact of the floods on prices will be “one-off, transitory” and that reconstruction will probably offset any impact of the calamity on the economy.

Damage to farm sector from recent storms and flooding is estimated at 2.6 billion pesos ($59 million), Agriculture Undersecretary Dante Delima said in a briefing today.

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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