Days of cheap financing coming to an end – DOF

MANILA, Philippines – The Philippines has been a victim of “overreaction” from investors taking signals cheap financing is bound to end next month, the Department of Finance said.

“The days of cheap financing and large capital inflows are coming to an end,” Finance Undersecretary Gil Beltran said in an economic bulletin. “There is, however, an overreaction by fund managers and have lumped all economies into one category without regards to macroeconomic fundamentals,” he said.

US rates are expected to rise once the Federal Reserve meets next month, taking its cue from initial policy pronouncements of US president-elect Donald Trump.

Among others, Trump is expected to pump prime the economy with huge spending coupled with tax cuts, probably lifting inflation faster than initially estimated.

Beltran said this is causing Asian currencies, including the peso, to become unattractive to investors and thus weaken against the greenback.

Based on his calculations, the peso has weakened 3.27 percent this month. That has since been reduced after it recovered to 49.84 to $1 last Friday.

This was in line with the average for 12 major Asian currencies, which depreciated 3.26 percent during the same period.

“Economies like the Philippines are net lenders rather than borrowers... (But) the Philippine peso rides with the direction of international currents,” Beltran said.

“The Philippine peso has moved in tandem with other Asian currencies,” he said.

A better performance could be seen when currency volatility is considered for the past six years.

According to the bulletin, the peso’s volatility – or the magnitude of its upward and downward swings – was at five percent against the dollar. This was less than the average of seven percent.

Across Southeast Asia, it matched the Thai baht’s rate and fared better than Malaysian ringgit’s 11.6 percent and Indonesian rupiah’s 11.9 percent. It, however, fell behind Singaporean dollar and Vietnam dong that posted 4.1 percent.

The Bangko Sentral ng Pilipinas, in particular, is watching how much the peso is moving, instead of directly intervening against its weakness, as excessive swings could impact business decisions.

Last Thursday and Friday, the peso was seen flirting at the 50 to $1 level during trading, the weakest since 2006 before it recovered upon closing.

“We are watching the currency movements very closely. We seem to be moving in the same direction as the other currencies,” Finance Secretary Carlos Dominguez said.

“We just want to avoid abrupt changes in the exchange rates,” he said.