Bloomberg News

Philippine Peso Declines as Moody’s Downgrades Worsen Outlook

June 22, 2012

The Philippine peso fell for a second day after Moody’s Investors Service downgraded the credit ratings of 15 global banks, adding to concerns about a global economic slowdown.

The currency declined this week for the first time in a month as the central bank reported the balance of payments surplus dropped 73 percent in the first five months of the year to $1.3 billion. Governor Amando Tetangco predicted it will end 2012 at $2.6 billion, compared with an earlier estimate of $2.8 billion.

“The downgrade of the banks generally weakened investor sentiment,” said Raul Tan, head of the balance-sheet segment of Rizal Commercial Banking Corp. (RCB)’s Treasury Group in Manila.

The peso fell 0.1 percent to close at 42.45 per dollar in Manila, according to prices from Tullett Prebon Plc. It declined 0.5 percent this week. One-month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 5.95 percent.

The central bank will “respond, as appropriate, to ensure there is no excessive volatility in domestic markets” caused by developments in Europe and the U.S., Tetangco wrote in an e-mail yesterday. Authorities will ensure growth is sustained while inflation targets are met, he added.

The Federal Reserve this week cut its 2012 expansion estimate to a range of 1.9 percent to 2.4 percent, compared with an April prediction of 2.4 percent to 2.9 percent. The U.S. is the Philippines’ biggest source of repatriated funds and its second-largest export market.

Net foreign direct investments to the Philippines this year will likely be $1.2 billion from a previous estimate of $2 billion, Deputy Governor Diwa Guinigundo said today in Manila. Net overseas investment in stocks and bonds may reach $4.5 billion instead of a prior prediction of $5.7 billion, Guinigundo said.

Remittances Support

Cash sent home by Filipinos living overseas increased 5.3 percent in April from a year earlier, compared with a 5 percent gain in March, the central bank reported on June 15. Exports rose 7.6 in April following a 1.2 percent drop the previous month, official data show. Overseas sales and remittances account for more than 30 percent of the $200 billion economy.

“We’re still seeing steady flows in remittances as well as revenue from the outsourcing sector,” Rizal Commercial Bank’s Tan said. “Philippine assets are supported by strong growth and stable inflation.”

The yield on 5.75 percent government bonds due November 2021 rose 10 basis points today, or 0.10 percentage point, to 5.5 percent, according to Tradition Financial Services. The rate was unchanged for the week.

To contact the reporters on this story: Clarissa Batino at cbatino@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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