Philippine Peso Volatility at Decade-Low on Intervention Risk

A gauge of expected fluctuations in the Philippine peso held at the lowest in a decade after central bank officials repeated warnings this week that the authority may take steps to counter appreciation. Bonds gained.

The peso reached 40.55 per dollar on Jan. 14, its strongest level since March 2008, prompting Governor Amando Tetangco to say the next day the central bank participated in the market to restrain the currency and is focused on limiting speculative inflows that could lead to asset-price bubbles. The monetary authority restricted the use of currency forwards last month and Deputy Governor Diwa Guinigundo said yesterday more measures will be considered to address inflows.

“The increased frequency of verbal intervention and warnings by the central bank are keeping players from betting on peso appreciation too aggressively,” said Radhika Rao, a Singapore-based economist at Forecast Pte. “The low peso volatility is unlikely to be sustained. The peso is still very much a bullish story.”

One-month implied volatility, a measure of expected moves in exchange rates used to price options, was unchanged at 4 percent as of 4:06 p.m. in Manila, according to data compiled by Bloomberg. That would be the lowest closing level since November 2002 and compares with an average 8.1 percent in the past decade. The gauge earlier fell one basis point, or 0.01 percentage point, to 3.99 percent.

Forwards Curbs

The peso traded at 40.620 per dollar, little changed from 40.628 yesterday, data from Tullett Prebon Plc show. Its 7.3 percent advance in the past 12 months trails only the South Korean won’s 8 percent gain among Asia’s 11 most-used currencies.

The government will curb fluctuations in the exchange rate and will consider borrowing dollars onshore to temper the peso’s rise, President Benigno Aquino said yesterday in Cebu.

The central bank imposed limits on banks’ currency-forward positions in December, a year after it ordered lenders to provide more cash to cover risks on such contracts. It also banned foreign funds from its special deposit accounts in July to slow inflows.

The prospect of investment-grade credit ratings will attract funds and support the peso, Thomas Harr, Standard Chartered’s head of Asia local markets strategy in Singapore, said in an interview last week.

The Philippines has the highest so-called junk ratings from Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. S&P raised its outlook to positive on Dec. 20, hours after the government enacted higher taxes on tobacco and liquor.

The benchmark three-year bonds gained today. The yield on the 9.25 percent notes due January 2016 declined two basis points to 3.83 percent, according to noon fixing prices from the Philippine Dealing & Exchange Corp.

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