Peso Snaps Two-Day Decline on Optimism Fund Inflows to Sustain

The Philippine peso snapped a two-day decline on speculation bond-buying programs announced by the Bank of Japan, the European Central Bank and the Federal Reserve will underpin demand for the nation’s assets.

The currency traded near the strongest level since April 2008 before a central bank report today that Security Bank Corp. predicts will show a fourth month of surplus in the country’s balance of payments. Overseas investors purchased $2.2 billion more of local stocks than they sold this year through yesterday, compared with $484 million a year earlier.

“The open-ended quantitative easing policies will push liquidity into Asian currencies and there will be winners including the peso,” said Patrick Ella, an economist in Manila at Security Bank. “There’s been some occasional market pullback but overall equity inflows have been strong.”

The peso gained 0.3 percent to 41.622 per dollar as of 4 p.m. local time, data from Tullett Prebon Plc showed. The currency may reach 41 by year-end, Ella forecast, a level not seen since March 2008. One-month implied volatility, which measures exchange-rate swings used to price options, dropped 15 basis points, or 0.15 percentage point, to 5.25 percent.

The nation may record a $1 billion balance-of-payments surplus in August, Security Bank predicts, compared with $3.2 billion in July.

Fed Boost

The peso extended gains after the Bank of Japan unexpectedly eased monetary policy today by expanding its asset-buying fund by 10 trillion yen ($126.5 billion). The Fed said Sept. 13 it will increase its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month, while pledging to hold interest rates near zero at least through mid-2015. The European Central Bank agreed this month to unlimited bond-buying.

Standard Chartered Plc said in research note today the U.S. quantitative easing program is a “net positive” for inflows for Asian currencies. The bank recommended on Sept. 14 buying three-month non-deliverable peso forwards at 41.55, targeting an advance to 40.25.

The yield on the 8 percent government bonds due July 2031 dropped for a second day, easing one basis point to 5.67 percent, according to Tradition Financial Services. The treasury will auction 9 billion pesos ($216 million) of 2032 notes on Sept. 25.

Bangko Sentral ng Pilipinas kept its overnight rate at a record-low 3.75 percent on Sept. 13. There is still room for the central bank to lower the rate to 3.5 percent later this year, Ella said, even as the government boosts spending to shore up economic growth.

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