The Philippine peso fell to the lowest level since August 2010 after the central bank signaled it won’t raise interest rates to support the currency amid an emerging-market selloff. Government bonds advanced.
Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a Feb. 2 e-mail that using the policy rate to curb market volatility caused by U.S. stimulus cuts may not be the best strategy. The authority will keep its overnight borrowing rate at a record low 3.5 percent on Feb. 6, according to 14 of 15 economists surveyed by Bloomberg News.
“The governor sent a clear signal that he won’t raise interest rates to address temporary market volatility,” said Roland Avante, president of Philippine Business Bank in Manila. “There is a bias for the peso to weaken further but we have to remember that the BSP has near-record foreign reserves and has the capability to arrest any unwarranted peso drop.”
The peso fell 0.1 percent to 45.433 per dollar at the noon trading break in Manila, according Tullett Prebon Plc. It touched 45.475 earlier, the weakest since Aug. 25, 2010. One-month implied volatility in the currency, a measure of expected moves in the exchange rate used to price options, was little changed at 7.06 percent.
The yield on the 6.25 percent bonds due November 2016 fell 15 basis points, or 0.15 percentage point, to 3.34 percent, the biggest decline in three weeks, according to midday fixing prices at Philippine Dealing & Exchange Corp.
The Philippines had $83.2 billion in foreign reserves at the end of 2013, near a record $85.3 billion reached earlier last year, according to official figures.
“Tweaking policy rates to address short-term financial-market volatility could likely create unintended consequences, and heighten volatility even more,” Tetangco said in his e-mail. “Policy-rate changes are not necessarily the most appropriate response at this time.”
The Federal Reserve reduced its monthly bond purchases by $10 billion each in January and February to $65 billion. The U.S. monetary authority will continue cutting the stimulus and end it no later than December, according to economists surveyed by Bloomberg on Jan. 10.
Philippine inflation quickened to 4.1 percent in December, the fastest in two years, and consumer prices are forecast to rise at the same pace in January, according to a Bloomberg survey of economists before tomorrow’s report.
The nation’s 7.2 percent growth last year is attracting investors, President Benigno Aquino said in a speech today in Manila, crediting efficient and strategic governance.
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