Philippine Peso Falls as Tetangco Sees More Measures; Bonds Rise

The Philippine peso completed a second weekly decline on speculation the central bank will step up efforts to curb capital inflows. Five-year bonds rose.

Bangko Sentral ng Pilipinas is studying measures to counter excessive capital flows lured by the improving economy, Governor Amando Tetangco said in an interview this week. The Philippines may further loosen foreign-exchange rules to encourage outflows and is assessing measures to discourage carry trades involving the nation’s fixed-income assets, Felipe Medalla, a member of the central bank’s Monetary Board said Jan. 30. Carry trades involve borrowing funds where interest rates are low and investing in higher-yielding assets elsewhere.

The peso dropped 0.1 percent this week to 40.70 per dollar at the close in Manila, according to Tullett Prebon Plc. It was little changed from 40.658 yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, held at 4.3 percent today.

“We will probably see more concrete action on inflows as we go along and these moves are not out of sync in the region,” said Enrico Tanuwidjaja, a Singapore-based economist at Royal Bank of Scotland Group Plc.

South Korea should consider taxes on currency trading and bonds to help limit “speculative” inflows of capital, Deputy Finance Minister Choi Jong Ku said Jan. 30. Thailand will set up a team of economists, including central bank Governor Prasarn Trairatvorakul, to study how to respond to short-term inflows, Finance Minister Kittiratt Na-Ranong said the same day.

The Philippines has to manage peso appreciation as sustained currency strength affects the competitiveness of exporters and outsourcing sectors, Economic Planning Secretary Arsenio Balisacan said yesterday.

Special Deposits

Bangko Sentral ng Pilipinas can’t rule out a further reduction in the rate it pays on special deposit accounts after a cut last week, Tetangco said on Jan. 30. The $225 billion Philippine economy expanded 6.6 percent in 2012, the fastest pace in two years and exceeding the official 5 percent to 6 percent target, the government reported yesterday.

“This gives us more degrees of freedom to adjust our market operations and institute other macroprudential tools as appropriate to ensure that volatilities in financial markets do not translate into excesses in other sectors of the economy,” Tetangco said yesterday after the growth report.

The Philippine monetary authority in December announced limits on banks’ currency forward positions and in July banned overseas funds from parking money in its special deposit accounts. The central bank reduced on Jan. 24 the rate it pays on 1.72 trillion pesos ($42 billion) in the accounts, a gauge of surplus cash, to 3 percent from more than 3.5 percent. It kept the benchmark overnight borrowing rate unchanged at a record-low

3.5 percent.

The yield on the government’s 5 percent bonds due August 2018 fell eight basis points, or 0.08 percentage point, today to

3.6 percent, the lowest since the notes were first sold in August 2011, according to Tradition Financial Services. The rate declined 38 basis points this week.