Philippine Peso Weakens to Two-Month Low on Fed, Growth Concern

The Philippine peso fell for a fourth day, touching the lowest level in more than two months on speculation the U.S. will scale back stimulus that’s boosted emerging markets. Government bonds weakened.

Minutes of the Federal Open Market Committee’s Oct. 29-30 meeting released this week showed U.S. policy makers said asset purchases may be reduced in the “coming months” as the world’s largest economy improves. There’s also concern that the Philippine Supreme Court’s decision this week to strip lawmakers of their discretionary power to allocate funds for infrastructure and development projects may curb growth, according to the Bank of the Philippine Islands.

“The markets are mainly reacting to a possible tapering,” said Alan Cayetano, the Manila-based head of foreign exchange trading at the nation’s largest lender by market value. “To a certain extent, the Supreme Court decision has growth implications.”

The peso fell 0.3 percent today and 0.5 percent this week to close at 43.865 per dollar in Manila, its weakest since Sept. 13, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was little changed at 5.97 percent.

The yield on the 8 percent sovereign debt due July 2031 rose three basis points, or 0.03 percentage point, to 4.33 percent, the highest level since Nov. 13, according to Tradition Financial Services.

Discretionary Budgets

The court also barred President Benigno Aquino from using his social fund to finance priority infrastructure projects, according to the Nov. 19 decision. Aquino pledged to remove discretionary budgets in August after thousands of people turned to social media and organized anti-corruption protests.

Overseas remittances, which typically rise during the fourth quarter and may increase further as relatives of Typhoon Haiyan victims send aid, will offset the impact of tapering concerns, said Ricky Cebrero, head of treasury at Philippine National Bank.

The peso will probably end the year at 43 per dollar, Cebrero said, weaker than his earlier forecast of 42.50.

Haiyan killed more than 4,000 people in the Philippines when it hit on Nov. 8 and damaged at least 12 billion pesos ($274 million) of farm output and structures, according to the government.

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