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The Philippine central bank will curb excessive currency movements if needed, Governor Amando Tetangco said, as the peso slumped to a four-month low amid a selloff in emerging-market assets.
The peso’s weakness and the pace of its decline is “broadly in line” with other regional currencies, Tetangco said in e-mails to Bloomberg News today, adding traders have shifted away from the euro into so-called safe haven assets such as the U.S. dollar and Treasuries. The central bank is studying measures to improve its policy tools to manage domestic liquidity aimed at avoiding a build-up in inflationary pressures, Tetangco said.
Emerging-market policy makers are stepping up efforts to curb volatility in financial markets and support currencies hurt by the threat of a Greek exit from the euro. Brazil auctioned currency swap contracts and Mexico sold dollars for the first time since 2009 this week to prop up their exchange rates.
“In a period of heightened uncertainty, market participants take on defensive stances,” Tetangco said. “This trend may continue. But when more normalcy settles, we could see a move back to assets of emerging-market sovereigns and corporates that have shown fair resiliency.”
Asian currencies fell for a fourth week, the longest stretch of losses this year. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen dropped 0.5 percent this week and touched 114.21 today, the lowest level since Dec. 15. Funds based abroad pulled $1.5 billion from equity markets in Taiwan, South Korea, Indonesia and Thailand in the first four days of this week, exchange data show.
The Philippine peso weakened 1.2 percent to 43.755 this week.
Bangko Sentral ng Pilipinas is prepared to take measures against speculation, such as carry trades, involving its short- term deposits, Tetangco said in April. In a carry trade, an investor makes money by borrowing in a country with low interest rates, converting the money to a currency where borrowing costs are higher and lending the amount at that higher rate.
“We are watchful to see how else we can fine-tune our other policy tools like the special deposit accounts, to help ensure these continue to enable us to effectively manage the domestic liquidity generated by foreign-exchange flows,” Tetangco said. Special deposit accounts are not open to overseas investors and have tenors of two weeks and one month.
Bangko Sentral is monitoring the actions of participants in the foreign-exchange market, as well as that of policy makers in other countries, Tetangco said.
“Our policy has always been to maintain a presence in the foreign-exchange markets only to contain excesses in market movements, and to ensure that the amount of liquidity in the system would not be inflationary,” he said.
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