Philippines struggle to curb strong peso

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Philippine president Benigno Aquino III has imposed a ceiling for currency swaps to curb the strengthening of the peso.

The Philippines by the end of the year 2012 have intensified efforts to contain the surge of the country’s currency, imposing a ceiling on certain currency forward contracts for local banks at 20 per cent of capital, and 100 per cent for foreign financial institutions.

The Philippine peso closed 2012 at its strongest level in five years – plus 6.5 per cent against the US dollar year-on-year, ending 2012 at 41.005 – as an evidence of the country’s much improved economic fundamentals, but the gains are also hurting sales of exporters and service providers such as the huge Business Process Outsourcing industry whose charges rose significantly for overseas clients compared to its main global competitors in India, threatening the low-cost advantage of the sector (Inside Investor reported).

Notably, the Philippines peso strengthened against the Indian rupee by 9.5 per cent in 2012 and by a total of 30 per cent the past two years.

The Philippines peso also appreciated 16.6 per cent against the Japanese yen, 5.5 per cent against the Chinese yuan and 4.6 per cent against the euro, posing a risk to the economy given that the Philippines is still quite trade dependent. The strength of the currency is also reducing remittances from Oversea Filipino Workers, a large source of foreign currency income for the country.

The Philippine currency will probably gain 3.7 per cent in 2013, according to the median estimate of 22 analysts in a Bloomberg survey. Peso bonds will beat the nation’s dollar debt in 2013 as investors lured by the chance of an investment-grade rating favor the higher-yielding notes, according to a Bloomberg forecast.

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Reading Time: 1 minute

Philippine president Benigno Aquino III has imposed a ceiling for currency swaps to curb the strengthening of the peso.

The Philippines by the end of the year 2012 have intensified efforts to contain the surge of the country’s currency, imposing a ceiling on certain currency forward contracts for local banks at 20 per cent of capital, and 100 per cent for foreign financial institutions.

Reading Time: 1 minute

Philippine president Benigno Aquino III has imposed a ceiling for currency swaps to curb the strengthening of the peso.

The Philippines by the end of the year 2012 have intensified efforts to contain the surge of the country’s currency, imposing a ceiling on certain currency forward contracts for local banks at 20 per cent of capital, and 100 per cent for foreign financial institutions.

The Philippine peso closed 2012 at its strongest level in five years – plus 6.5 per cent against the US dollar year-on-year, ending 2012 at 41.005 – as an evidence of the country’s much improved economic fundamentals, but the gains are also hurting sales of exporters and service providers such as the huge Business Process Outsourcing industry whose charges rose significantly for overseas clients compared to its main global competitors in India, threatening the low-cost advantage of the sector (Inside Investor reported).

Notably, the Philippines peso strengthened against the Indian rupee by 9.5 per cent in 2012 and by a total of 30 per cent the past two years.

The Philippines peso also appreciated 16.6 per cent against the Japanese yen, 5.5 per cent against the Chinese yuan and 4.6 per cent against the euro, posing a risk to the economy given that the Philippines is still quite trade dependent. The strength of the currency is also reducing remittances from Oversea Filipino Workers, a large source of foreign currency income for the country.

The Philippine currency will probably gain 3.7 per cent in 2013, according to the median estimate of 22 analysts in a Bloomberg survey. Peso bonds will beat the nation’s dollar debt in 2013 as investors lured by the chance of an investment-grade rating favor the higher-yielding notes, according to a Bloomberg forecast.

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