Philippine Peso Climbs for Third Week as BSP Ready to Intervene

The Philippine peso climbed for a third week, the longest winning streak since September, after the central bank reiterated it will intervene in the market to stem volatility.

Bangko Sentral ng Pilipinas has scope to maintain a presence in the market to smooth fluctuations in the peso and isn’t targeting a specific level, Governor Amando Tetangco told reporters in Sydney today. The Federal Reserve’s decision to keep on scaling back monetary stimulus has created a “spillover effect” for the global economy, he said.

The peso climbed 0.4 percent this week and 0.5 percent today to 44.555 per dollar at the close in Manila, according to prices from Tullett Prebon Plc. It’s gained 1.7 percent this month, the second-best performance among Asia’s 11 most-traded currencies after the Indonesian rupiah.

“The peso is consolidating its gains for the month and may trade between 44.30 and 45.30 for the next few weeks,” said Alan Cayetano, head of foreign-exchange trading at Bank of the Philippine Islands in Manila. “There’s still the risk that the emerging-market issues will appear again soon.”

The Fed started trimming its monthly bond purchases this year as the world’s biggest economy improves, reducing demand for assets in developing markets. Fund outflows from emerging Asia dropped to $1.2 billion in the week to Feb. 19 from $2.2 billion the prior week, according to a report from Australia & New Zealand Banking Group Ltd., citing EPFR data.

Bonds Rise

The peso touched 45.475 per dollar on Feb. 4, the lowest level since August 2010. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 26 basis points, or 0.26 percentage point, this week and five basis points today to 6.02 percent.

The peso is undervalued and there’s no fundamental reason for the weakness, Finance Secretary Cesar Purisima said Feb. 19.

“We are very proactive; we’re trying to control any speculative activity,” President Benigno Aquino said in a Feb. 19 interview. There’s no danger that the Philippine economy will overheat even as annual growth exceeds 7 percent, he said.

The nation’s foreign-exchange reserves stood at $80 billion last month, down from $83 billion in December, official data show. That’s more than the five-year average of $65 billion.

Government bonds rose for a fourth week, with the yield on the 6.25 percent notes due November 2016 falling three basis points to 3.19 percent, a two-week low, according to midday fixing prices at Philippine Dealing & Exchange Corp.

Money sent home by Filipinos working overseas climbed 9.1 percent to a monthly record of $2.15 billion in December, the central bank reported on Feb. 17. Remittances rose 6.4 percent in 2013 to an all-time annual high of $22.76 billion.

‘Policy Space’

The nation’s balance of payments posted a record deficit of $4.48 billion in January when a net $1.8 billion of stocks and bonds were sold by overseas investors, based on central bank reports issued this month.

Emerging-market economies with weaker fundamentals were most affected by U.S. stimulus tapering, Shanaka Peiris, Philippine representative of the International Monetary Fund, said in a e-mailed reply to questions. “The Philippines is not in this group, and has the policy space to manage the current and any future volatility,” he said.

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