Philippine Peso Rebounds From 2010 Low as Growth Seen Quickening

The Philippine peso rebounded from its lowest level since August 2010 after a government official projected economic growth will gather pace this quarter.

Gross domestic product may beat the 6.5 percent in the previous three months, Economic Planning Secretary Arsenio Balisacan said in an interview today in Manila. Rebuilding from Typhoon Haiyan, exports and tourism will support the economy, he said. The nation’s stock index slumped 2.2 percent in its biggest daily loss since September, as U.S. factory data disappointed investors, triggering a regional selloff.

“The fundamentals of the economy are very sound and the recent weakness of the peso and stocks should be an opportunity for investors to get into the market,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila, the nation’s largest lender.

The peso rose 0.2 percent to 45.32 per dollar at the close in Manila, according to Tullett Prebon Plc. It touched 45.475 earlier, the weakest since Aug. 25, 2010. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose four basis points, or 0.04 percentage point, to 7.11 percent.

The yield on the 7.375 percent government bonds due March 2021 climbed three basis points to 4.25 percent, according to prices at Tradition Financial Services.

The market is awaiting January inflation numbers due at 9 a.m. local time tomorrow to get a better gauge of the central bank’s monetary policy outlook, Ravelas said.

Consumer prices increased 4.1 percent in December, the fastest pace in two years, and are forecast to rise at the same rate in January, according to the median estimate of economists in a Bloomberg survey.

Policy Meeting

Using the benchmark interest rate to curb market volatility caused by U.S. stimulus cuts may not be the best strategy, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a Feb. 2 e-mail. The authority will keep its overnight borrowing rate at a record low of 3.5 percent on Feb. 6, according to 16 of 17 economists surveyed by Bloomberg. One predicts a quarter percentage point increase.

“The governor sent a clear signal that he won’t raise interest rates to address temporary market volatility,” said Roland Avante, president of Philippine Business Bank in Manila. “There is a bias for the peso to weaken further but we have to remember that the BSP has near-record foreign reserves and has the capability to arrest any unwarranted peso drop.”

The Philippines had $83.2 billion in reserve holdings at the end of 2013, near a record $85.3 billion reached earlier last year, according to official figures.

“Tweaking policy rates to address short-term financial-market volatility could likely create unintended consequences, and heighten volatility even more,” Tetangco said in his e-mail. “Policy-rate changes are not necessarily the most appropriate response at this time.”

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