A man counts Philippine Peso bills inside a store in Manila, Philippines. (Photographer: Hannah Reyes Morales/Bloomberg)

Philippine Peso Falls After New Central Bank Governor Says It's Near Top End of Band

(Bloomberg) -- The Philippine peso swung to a loss after the new central bank governor indicated that the currency is already trading close to the upper end of a band while reiterating there’s scope to ease monetary policy.

The peso fell almost 1 percent at the close in Manila to 52.70 against the dollar, a six-week low and the only loser among emerging-market currencies in Asia on Tuesday, after Bangko Sentral ng Pilipinas Governor Benjamin Diokno said it’s trading within the government’s forecast of 52 to 55. The currency also slumped 1 percent on March 5, the day after Diokno’s appointment.

In an interview with ABS-CBN News Channel, the former budget secretary known for his pro-growth policies said the central bank “won’t intervene as long as it’s within reasonable amount or bound.”

Diokno told the TV channel that slowing inflation, dovish comments from the U.S. Federal Reserve and stable oil prices give the central bank room to cut the policy rate as well as the 18 percent ratio of cash that banks must hold in reserve. “It could be 1 percentage point every quarter for the next four quarters,” he said on the reserve ratio.

The cost of government borrowing fell at an auction Tuesday following Diokno’s remarks, Deputy Treasurer Erwin Sta. Ana told reporters in Manila. The average yield of the 10-year bond fell to 6.196 percent from 6.875 percent coupon in January when the debt was first issued.

Analysts Insights

  • Steven Michael Reyes, head of trading and sales at Rizal Commercial Banking Corp., said Diokno seems to be tolerant of a weaker peso, given the currency’s forecast range he disclosed. Rizal Bank expects the peso to trade between 51.50 and 54.65 per dollar this year, with room to appreciate by year-end. “The market will continue to watch for signs whether the current BSP environment will be consistent with what it was before, or whether there will be changes.”
  • 52 to 55 pesos per dollar is the range that “the government economic cluster is comfortable with,” said Nicholas Mapa, senior economist at ING Groep NV in Manila. Diokno will “let it play within this band. He’ll pretty much see where the market goes and intervene as necessary,” he said. ING forecasts the peso will end 2019 at 54.04 against the dollar
  • “The level is not important; the question is how you smooth out volatility,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc., the nation’s largest lender. “It’s still a wait-and-see mode. We still have to look at what they will say. We have to wait until the next Monetary Board meeting”

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