The Philippine peso surged the most in a year and government bonds gained on speculation a third round of asset purchases by the Federal Reserve will spur fund flows into emerging markets.
The MSCI Asia-Pacific Index of shares climbed to a four-month high after the Fed said yesterday it will expand holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. The Philippines is ready to smooth out “potential excessive volatility” in the nation’s financial assets including the exchange rate, central bank Governor Amando Tetangco said in a text message today.
“The flows are coming in,” said Rafael Algarra, executive vice president of financial markets at Security Bank Corp. in Manila. “The Fed’s quantitative easing is fueling inflows toward risky assets, and it’s natural that many Asian assets will go up.”
The peso rose 0.9 percent to 41.405 per dollar as of the 4 p.m. close in Manila, the biggest gain since Sept. 28, 2011, data from Tullett Prebon Plc showed. It closed at the strongest level since April 2008 and strengthened 0.6 percent this week. One-month implied volatility, which measures exchange-rate swings used to price options, dropped 25 basis points to a four-month low of 5.25 percent. It fell 45 basis points this week.
Bangko Sentral ng Pilipinas held its benchmark interest rate at a record-low 3.75 percent yesterday, while raising inflation forecasts for this year and next.
The pace of price increases may average 3.4 percent this year and 4.1 percent in 2013, compared with earlier projections of 3.1 percent and 3.2 percent, respectively, Deputy Governor Diwa Guinigundo said yesterday. Policy makers aim to contain inflation, which reached 3.8 percent in July, between 3 percent and 5 percent.
The yield on the 7.375 percent bonds due March 2021 fell five basis points, or 0.05 percentage point, to 4.68 percent, according to Tradition Financial Services. The rate fell six basis points this week.
The Philippines is ready to hold a debt swap or buy back more expensive bonds, Finance Secretary Cesar Purisima said in an interview in Melbourne today. The government is reviewing privatization plans, and may sell more assets as it “rationalizes” operations of prisons, military facilities and hospitals, he said.