Philippine Peso Has Best Week in Three Months on QE3 Optimism

The Philippine peso completed its biggest weekly gain in almost three months and government bonds rose as speculation the U.S. plans a third round of quantitative easing bolstered demand for higher-yielding assets.

Federal Reserve Chairman Ben S. Bernanke said Aug. 31 he doesn’t rule out more monetary easing in the world’s biggest economy. A European Central Bank plan to tackle the region’s debt crisis with unlimited bond purchases spurred risk-taking today, helping emerging markets draw funds. Bangko Sentral ng Pilipinas will keep its benchmark interest rate unchanged at 3.75 percent on Sept. 13, according to 11 out of 13 economists surveyed by Bloomberg. Two expect a 25 basis point cut.

The peso rose 1 percent this week to 41.67 per dollar in Manila and advanced 0.5 percent today, according to Tullett Prebon Plc. It has appreciated 5.2 percent this year, the best performance among Asia’s 11 most-active currencies, data compiled by Bloomberg show. One-month implied volatility, a measure of exchange-rate swings used to price options, dropped 40 basis points to 5.7 percent this week and was unchanged today.

“QE3 definitely propped up Asian currencies,” said Enrico Tanuwidjaja, a regional economist at Royal Bank of Scotland Group Plc in Singapore. “The market expectation that the policy rate will be kept unchanged because of strong growth and inflation picking up supports the peso.”

Consumer-price gains accelerated to 3.8 percent in August, the fastest pace since January, the government reported on Sept. 5. The Philippine economy expanded 5.9 percent in the three months through June from a year earlier, compared with a 5.5 percent gain predicted by analysts in a Bloomberg survey, according to official figures released Aug. 30.

Best Performer

Central bank Deputy Governor Diwa Guinigundo said today policy makers will probably raise inflation forecasts for 2012 and 2013, signaling the bank may pause after three interest-rate cuts this year. Bangko Sentral forecast in July that inflation will average 3.1 percent this year, and 3.2 percent in 2013.

“Monetary policy remains appropriate at this time,” Guinigundo said in an interview in his office in Manila. “You now face significant issues with respect to commodity price increases. On the geopolitical side, there was renewed tension in the Middle East, driving concern on possible tightening of supplies.”

The government may reduce its overseas borrowing to curb foreign-exchange risks, Finance Undersecretary Rosalia de Leon told reporters in Manila yesterday. This latest news on cutting overseas borrowing is also “positive” for the peso, Tanuwidjaja said.

The government’s benchmark 10-year bonds rose this week. The yield on the government’s 4.875 percent bonds due August 2022 declined five basis points, or 0.05 percentage point, to 4.83 percent, according to prices from Tradition Financial Services. The rate was unchanged today.

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