The Philippine peso fell to its lowest level in more than three months and bonds dropped after the Federal Reserve said it will start scaling back stimulus that supported demand for the nation’s assets.
The peso was poised for a third weekly decline after the U.S. central bank announced Dec. 18 that it will reduce its monthly bond purchases to $75 billion from $85 billion starting January as the job market recovers. The Philippine Stock Exchange (PCOMP) Index fell, paring the week’s gain.
“Now that tapering is set to start, funds are rebalancing their portfolios back to the U.S., where growth is expected to pick up,” said Ricky Cebrero, head of treasury at Philippine National Bank in Manila. “While we don’t expect funds to leave Asia as growth remains supported, there will be a reallocation given the upside potential of the U.S. economy.”
The peso dropped 0.8 percent this week and 0.1 percent today to 44.497 per dollar as of the noon break in Manila, the lowest level since Sept. 6, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 22 basis points this week and two basis points today to 6.06 percent.
The yield on the 8.875 percent bonds due November 2018 rose seven basis points, or 0.07 percentage point, to 3.42 percent this week, according to midday fixing prices at Philippine Dealing & Exchange Corp. The rate fell four basis points today.
The local currency has fallen 7.9 percent this year, the fourth biggest decline in Asia and the worst annual performance since 2008. Financial markets will be shut for the Christmas and New Year break on Dec. 24, 25, 30, 31 and Jan. 1.
The nation’s current-account surplus will probably drop to $4 billion in 2014 from an estimated $11.1 billion this year as the post-Haiyan rebuilding boosts imports, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a briefing today in Manila. The excess in the balance of payments may drop to $3 billion in 2014 from the $5.3 billion forecast for this year, he said.
The surplus was equivalent to 5 percent of gross domestic product in the third quarter, widening from 3.6 percent in the three months ended June, according to BSP. The external payments surplus will continue to support the peso as the Fed starts tapering, Tetangco said.
The World Bank cut its economic growth forecast for the Philippines on Dec. 6 to 6.9 percent for 2013 and 6.5 percent next year, from previous estimates of 7 percent and 6.7 percent. GDP (PHGDPYOY) increased 7 percent in the three months ended September, the fastest in Southeast Asia.
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