Philippine Peso's Losing Streak Will Test Economy's `Sweet Spot'

(Bloomberg) -- Philippine policy makers’ hands-off approach to the peso’s selloff may be wearing thin.

Right now, their strategy seems to be to hope for a turnaround in what’s become Asia’s worst-performing currency this year. Finance Secretary Carlos Dominguez told Bloomberg TV this week losses were likely temporary as the underlying economy is in a “sweet spot.” Central bank Governor Nestor Espenilla, meanwhile, said companies should heed warnings from the currency market and avoid too much foreign borrowing.

But the Federal Reserve’s plans to scale back its balance sheet don’t bode well for emerging-market currencies, and with the Philippines poised to post its first annual current account deficit in 15 years, a weakening currency only adds to that vulnerability. Espenilla won’t be able to avoid a rate hike, according to Australia & New Zealand Banking Group Ltd.

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