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Philippine Peso Weakens Beyond 45 for First Time Since 2010

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Jan. 16 (Bloomberg) -- The Philippine peso weakened beyond 45 per dollar for the first time since 2010 on speculation the Federal Reserve will quicken stimulus reductions as the U.S. economy improves.

Bangko Sentral ng Pilipinas is watching the peso, Governor Amando Tetangco said in a mobile-phone message when asked whether the monetary authority is curbing losses in the local currency, which lost 1.6 percent in January in the region’s worst performance. Data today will probably show unemployment benefit claims in the world’s largest economy declined in the week ended Jan. 11, according to a Bloomberg survey.

“There’s a strong-dollar view and in the domestic setting, the central bank appears not to be in a hurry to raise interest rates given the within-target inflation,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. in Manila.

The peso fell 0.3 percent to 45.112 per dollar at the close in Manila, declining for a third day, according to Tullett Prebon Plc. It touched 45.16 earlier, the weakest since Sept. 1, 2010. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped four basis points to 6.8 percent.

The Fed’s tapering and dollar demand from importers are causing the peso’s weakness, Tetangco said yesterday. Inflation is forecast to be above 4 percent this year, still within a 3 percent to 5 percent target, he said. The U.S. central bank said in December that it would reduce its monthly bond buying by $10 billion to $75 billion starting this month.

Monetary Policy

“At this point in time, BSP doesn’t see an urgency to change the stance of monetary policy,” Tetangco said in a Jan. 13 interview. The central bank held its benchmark interest rate at a record low of 3.5 percent for a ninth meeting last month to boost the economy’s recovery from Super Typhoon Haiyan.

The nation’s economy may have expanded between 5.8 percent and 6.5 percent in the fourth quarter, ABS-CBN News reported, citing Economic Planning Secretary Arsenio Balisacan. The government will report the data on Jan. 30. The BSP will hold its next policy meeting on Feb. 6.

The yield on the 8.875 percent government bonds due November 2018 fell seven basis points, or 0.07 percentage point, to 4.09 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp.

“Inflation will become more of a concern as the peso weakens,” Rizal Bank’s Mercado said.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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