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Philippine Peso Has Worst Week in 9 Months as Stocks, Bonds Drop

The Philippine peso completed its biggest weekly loss in nine months on speculation an improving U.S. economy will prompt the Federal Reserve to rein in monetary stimulus. Bonds and stocks declined.

Bangko Sentral ng Pilipinas is “closely monitoring” any unwinding of stimulus by advanced economies that may lead to outflows, Governor Amando Tetangco told reporters today in Manila. Fed Chairman Ben S. Bernanke said this week the central bank may taper monthly bond buying if it’s confident of sustained economic gains. First-quarter growth in the Philippines was probably on track to meet this year’s goal of 6 percent to 7 percent, Economic Planning Secretary Arsenio Balisacan said before a May 30 report.

“We’re seeing some profit-taking in stocks and bonds, in part triggered by speculation on the Fed exit,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “Funds will probably reinstate in a while. We see the momentum in Philippine growth supported during the first quarter.”

The peso dropped 1 percent this week to 41.595 per dollar in Manila, the biggest drop since the five days ended Aug. 17, according to Tullett Prebon Plc. The local currency touched 41.69 yesterday, the lowest since Oct. 2. The peso rose 0.2 percent today.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 73 basis points today to 5.95 percent.

Bonds, Stocks

The yield on the 5.875 percent notes due March 2032 rose 20 basis points, or 0.20 percentage point this week, to 3.95 percent, the highest since April 29, according to Tradition Financial Services. The Philippine Stock Exchange Index declined 0.6 percent, falling for a second day. The gauge lost 0.2 percent from a week ago.

Philippine stocks are expensive, Chris Eoyang, managing director for global economics, commodities and strategy research at Goldman Sachs Group Inc. said in Manila yesterday.

Bangko Sentral, in a memo posted on its website this week, said it will limit access to its special-deposit accounts by banning certain types of funds held by trust entities. The central bank reduced the interest rate on $45 billion in the accounts three times this year to 2 percent, while keeping its benchmark overnight rate at a record-low 3.5 percent.

The decision to limit access to the SDA won’t lead to “major shifts in system liquidity” as monetary policy remains effective in containing inflation and warding off asset bubbles, Tetangco said today. Any outflows from Fed unwinding won’t be massive and the Philippines has tools to cope, he said.

“Significantly more than half” of the funds in the SDA are investment management accounts, which the central bank had banned, Monetary Board Member Felipe Medalla said today.

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