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Philippines Joins Korea in Restraining Currency Gains: Economy

Amando Tetangco, governor of Bangko Sentral ng Pilipinas. Photographer: Julian Abram Wainwright/Bloomberg
Amando Tetangco, governor of Bangko Sentral ng Pilipinas. Photographer: Julian Abram Wainwright/Bloomberg

Dec. 27 (Bloomberg) -- The Philippines intensified efforts to contain a surging peso, joining South Korea in clamping down on currency forward positions as monetary stimulus in the world’s biggest developed economies spurs capital flows to Asia.

The Southeast Asian nation imposed a ceiling for non-deliverable currency forwards for local lenders at 20 percent of capital, and 100 percent for foreign entities, Bangko Sentral ng Pilipinas said yesterday. South Korea said in November it would tighten caps on currency forward positions at banks.

The peso is the best performer in Asia after the Korean won this year, as Philippine growth exceeding 7 percent last quarter lured investors seeking better returns amid interest rates near zero and monetary easing in Europe, the U.S. and Japan. Excessive currency appreciation may hurt sales by exporters and service providers, complicating policy makers’ efforts to shield their economies from an uneven global recovery.

“We know the risk that it poses to the economy given that the Philippines is still quite trade dependent,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “For many Asian countries the question is how are they going to simultaneously manage capital flows and at the same time, if there are inflation risks, tackle these risks as well.”

South Korea’s government today lowered its growth forecasts for this year and for 2013, as Europe’s debt crisis caps demand for the nation’s exports. Gross domestic product will expand 3 percent next year, the Finance Ministry said in a statement in Sejong, less than the 4 percent predicted in September.

Philippine Growth

In the Philippines, GDP expanded 7.1 percent last quarter from a year earlier, helping stoke a gain of more than 6 percent in the peso versus the dollar this year. That’s the biggest jump after the won’s 7.5 percent increase among 11 Asian currencies tracked by Bloomberg.

While President Benigno Aquino is increasing spending and seeking investment in roads and airports to spur expansion, create jobs and reduce poverty, Economic Planning Secretary Arsenio Balisacan said last month the peso’s rise is a worry and will hurt exporters and overseas remittances.

“The current domestic operating environment has been greatly impacted by capital flows from overseas,” Governor Amando Tetangco said in Manila yesterday.

Yen Falls

Most Asian currencies in the group tracked by Bloomberg have climbed this year against the dollar, with the Indian rupee, Indonesia’s rupiah and the yen the only decliners. Japan’s yen is the region’s worst performer with a drop of more than 10 percent as Prime Minister Shinzo Abe pressures the central bank to boost cash infusions.

Currency gains are eroding competitiveness, the Business Processing Association of the Philippines said in a statement this week. In contrast, the weakness of the rupee has provided India “with a meaningful cost advantage,” said association president Benedict Hernandez.

The outsourcing group said that in a survey last week, 46.7 percent of respondents said it’s been tougher to hit revenue targets while 40 percent said they lost some business to other destinations. Business-process-outsourcing revenue may reach $25 billion by 2016 from $11 billion in 2011, Aquino has said, indicating the industry may soon match the importance of remittances. Cash transfers from Filipinos overseas are estimated by the central bank to climb to $22.2 billion in 2013.

China Profits

Elsewhere in Asia, China reported a gain in industrial companies’ profits in November that may help to fuel an economic acceleration. The nation’s rebound is uneven, with improvements in retailing, real estate and mining countered by rising inventories and lower corporate borrowing, according to a report modeled on the U.S. Federal Reserve’s Beige Book.

While shopping outlets and services companies are optimistic, credit conditions signal “this is not yet a period of strong expansion,” CBB International LLC, a New York-based researcher, said in an e-mailed summary of its China Beige Book.

Hong Kong is due to give November trade data today, while Italy reports on business confidence and the latest readings on the U.S. economy include jobless and home-sales data and the Bloomberg Consumer Comfort Index.

The Philippine currency will probably gain 3.7 percent in 2013, according to the median estimate of 22 analysts in a Bloomberg survey. Peso bonds will beat the nation’s dollar debt in 2013 as investors lured by the chance of an investment-grade rating favor the higher-yielding notes, according to Union Investment Privatfonds and Jyske Bank A/S.

Tobacco Tax

President Aquino signed a bill to increase tobacco and liquor taxes on Dec. 20, prompting Standard & Poor’s to raise the country’s credit-rating outlook from stable to positive a few hours later. Aquino has cut the budget deficit, cracked down on tax evaders and made progress in tackling corruption since he took office in 2010.

The peso weakened 0.1 percent to 41.217 per dollar as of 11:23 a.m. in Manila today, according to Tullett Prebon Plc. It fell the most in almost three weeks before Tetangco’s briefing yesterday. The benchmark Philippine Stock Exchange Composite Index advanced 0.2 percent to a record high yesterday and declined this morning.

Earlier this year, the central bank ordered lenders to provide more funds to cover risks on forward transactions and banned overseas investors from its special-deposit accounts. Capital controls won’t be necessary at this stage, Tetangco said this month.

‘Ensure Continuity’

The currency forward limits announced yesterday will be reviewed after six months, Tetangco said. More banks will be able to participate in the forwards if they have certain licenses, he added. Banks have two months to comply with the new regulation, he said.

Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars and are favored by many investors because funds don’t have to be deposited and registered locally.

“We want to ensure continuity of monetary and financial stability while discouraging regulatory arbitrage,” Tetangco said in a Dec. 14 interview. “We will definitely consider more macro prudential measures as needed.”

Bangko Sentral has cut the overnight rate by 100 basis points this year to bolster economic expansion and restrain currency gains. It held borrowing costs at 3.5 percent this month, even as inflation slowed to 2.8 percent in November. Consumer prices may rise 2.6 percent to 3.5 percent in December, Tetangco said yesterday.

In South Korea, authorities capped transactions at branches of overseas lenders at 150 percent of equity, compared with 200 percent earlier, while the ceiling for domestic banks was cut to 30 percent from 40 percent. The changes took effect on Dec. 1, with a one-month grace period to Jan. 1.

To contact the reporters on this story: Clarissa Batino at; Norman P. Aquino in Manila at

To contact the editor responsible for this story: Stephanie Phang at

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