Philippine peso NDFs weaken

Posted at 03/27/14 7:48 PM

SINGAPORE - The Philippine peso pared early losses on Thursday after the central bank increased banks' reserve requirements to mop up liquidity, while leaving its policy rate steady as expected.

The Bangko Sentral ng Pilipinas (BSP) raised the reserve requirements by 1 percent, even as it maintained its overnight borrowing rate at a record low of 3.5 percent. Still, many analysts expect a rate hike in coming quarters.

The peso's one-month NDFs (non-deliverable forward) stood at 44.97 per dollar as of 0926 GMT, compared with Wednesday's close of 44.94. After the central bank decision, the NDFs weakened to 45.07.

"Raising the RRR should start to weigh on money supply and work to contain inflation pressures. Hence, some of the details are hawkish," said Jonathan Cavenagh, senior FX strategist with Westpac in Singapore.

"Overall, I don't expect USD/PHP to race higher but certainly the downside is now probably well contained. So a 44.80-45.30 range may dictate things for the next little while," he added.

Spot peso ended local trade slightly weaker at 45.03 before the central bank decision.

The Philippine currency has lost 1.3 percent against the dollar so far this year.

Negative real interest rates persist.

Annual inflation in February stood at 4.1 percent. That compared with the central bank's policy rate of 3.5 percent and the five-year government bond yield of 3.848 percent.

Meanwhile, the South Korean won led gains among emerging Asian currencies on Thursday with month-end corporate demand.

The Singapore dollar hit a one-week high as investors bet that the central bank may keep tightening bias in a policy meeting in April.