Peso closes at 57-month high on solid data

Posted at 12/06/2012 8:24 AM | Updated as of 12/06/2012 2:01 PM

MANILA, Philippines - The peso closed at its highest level in 57 months against the dollar yesterday as investors continued to cheer the country’s sound economic fundamentals, bucking pronouncements from the Bangko Sentral ng Pilipinas (BSP) about a planned capital measure.

The local unit closed at 40.85 to a dollar yesterday, moving sideways from its 40.87 close on Tuesday. The peso last close at this same level on March 7, 2008.

Dollars traded amounted to $723.20 million, down from $752.35 million.

“It was still driven by positive sentiments on the country’s strong fundamentals. The latest of which was the November inflation that slowed from the previous month,” a trader at a local bank said in phone interview.

Another trader cited the remittance season as one of the factors for the continued strengthening of the peso as more Filipinos abroad sent home their dollars, driving demand for the peso and pushing its value up.

This, however, has been tamed by the BSP’s presence in the foreign exchange market, which according to the second trader has kept the peso at a tight range almost the entire week. The peso traded between a high of 40.85 and a low of 40.875 against the greenback yesterday.

This has been magnified by statements from BSP Governor Amando Tetangco Jr. yesterday, saying talks are ongoing between regulators and the banking industry on new regulations to cap the value of non-deliverable forward (NDF) transactions.

NDFs are short-term currency contracts used by investors to hedge against foreign exchange volatilities. These contracts allow the buyer to shield profits or tame losses as a result of currency movements.

Asked if NDF cap is underway to tame peso’s strength, Tetangco told reporters: “That is being discussed with the Bankers Association of the Philippines (BAP).”

The cap will be in the form of a “macro limit” in the “total amount” of NDF transactions, he added. He declined to elaborate. Other BSP officials also declined to provide details, while BAP officers could not be reached for comment.

In January, the central bank hiked capital charges on NDF to 15 percent from 10 percent as part of its macroprudential measures to tame the peso’s strength. Emilio Neri Jr., economist at the Bank of the Philippine Islands, said the upcoming reform is no difference.