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Philippine Peso Completes Best Week in a Year on Growth Optimism

The Philippine peso completed its best week in a year as the nation’s economic growth attracted investors amid bets the U.S. will hold off from paring stimulus measures that have boosted dollar supply.

The currency pared a monthly drop as the Philippine Stock Exchange Index rallied more than 11 percent in the past three days after entering a bear market this week. Philippine gross domestic product expanded 7.8 percent in the first quarter, the most in the region. A report this week showed the U.S. economy grew less than previously estimated, spurring speculation the Federal Reserve’s plan to cut asset purchases will be delayed. Global funds bought $65 million more local shares than they sold in the last two days, exchange data show.

“The reaction to the possible Fed tapering is a bit overdone and we should see some interest in Philippine assets as investors realize that our economic fundamentals are intact,” said Rafael Algarra, executive vice president and head of financial markets at Security Bank Corp. in Manila.

The peso rose 0.4 percent today and 1.2 percent in the week to 43.205 per dollar at the close in Manila, according to Tullett Prebon Plc. That’s the biggest five-day advance since June 2012. The currency fell 2.2 percent this month and 5.5 percent this quarter, the biggest decline since the three months through June 2008.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 24 basis points, or 0.24 percentage point, today to 7.94 percent. It fell 146 basis points since June 21.

Fed Chairman Ben S. Bernanke said June 19 the central bank may trim its $85 billion a month of debt buying this year and end it in 2014 as long as the economy performs in line with its projections.

Inflation, Rates

Bangko Sentral ng Pilipinas Governor Amando Tetangco told a forum on June 26 that Philippine economic fundamentals remain intact and the central bank’s low-interest-rate policy will continue as inflation is near the bottom end of the 3 percent to 5 percent target range. Consumer prices may have risen 2 percent to 2.9 percent this month, Tetangco said yesterday.

Bangko Sentral cut the rate on its special deposit accounts three times this year to 2 percent and kept its overnight borrowing rate at a record low 3.5 percent. Inflation was 2.6 percent in May, unchanged from a 13-month low in April.

“Low inflation and interest rates will continue to support growth,” Security Bank’s Algarra said.

Auction Plan

The Philippines’s Bureau of the Treasury kept the size of its debt auction plan for the next quarter unchanged and said on June 25 it will offer 10-year securities targeting individuals along with three- and five-year notes in the three months ending September.

The yield on the 6.125 percent bond due October 2037 fell 10 basis points today and 30 basis points this week to 5.2 percent, according to Tradition Financial Services. The rate climbed to 6.25 percent on June 24, the highest since the notes were first sold in October.

“It’s probably a stretch to think asset prices will go back to record levels but we will be seeing some interest after the recent rout,” Algarra said.

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