Peso seen weakening after US downgrade

THE peso would likely weaken for “a couple of weeks” as the downgrade of the United States’ credit rating continued to roil markets worldwide, but the currency could resume its appreciating trend in the medium-term amid the Philippines’ improving fundamentals, Finance Secretary Cesar Purisima told a Senate hearing Monday.

“We will have to monitor the developments because, at this point, everything is uncertain,” Purisima told the Senate committee on finance.

“This morning, world oil prices went down, so we really can’t have solid assumptions until in a couple of weeks.”

Bangko Sentral Governor Amando Tetangco Jr. agreed.

“Once the market digests this news, the investors will probably realize that most emerging markets are resilient and may become the driver of global economic growth this year,” Tetangco told the Senate.

Still, Standard & Poor’s Ratings Services, the same credit rating agency that downgraded by a notch the United States’ sovereign debt from triple-A to AA+, said export-driven countries in the region including the Philippines might experience slowdowns either through weaker demand or lower export prices, or both.

“We will be affected and I think everybody else will be affected if the biggest economy in the world starts shrinking,” Bangko Sentral Deputy Governor Diwa Guinigundo told reporters.

“But what we are hoping for is that the market will be more discriminating, more discerning, and the market will realize that some emerging markets continue to be very resilient,” he said.

The peso closed higher Monday at 42.50 to $1, halting a four-day loss. The peso has so far appreciated 3.1 percent this year.

“The initial reaction is for the dollar to weaken against Asian currencies,” Radhika Rao, an economist at Forecast Pte in Singapore, told Bloomberg.

“Asian currencies might not continue to strengthen because stock markets are going to be in a sober mood for the rest of the week.”

Tetangco said the US downgrade, after the initial market turmoil, might trigger risk aversion and lead to short-term capital outflows from emerging markets.

“As the Philippines, together with other emerging-market economies, becomes a more attractive diversification destination, we will speed up the review of possible refinements in the NDF [non-delivery forwards] market, which could include tighter prudential limits,” Tetangco said.

The yield on the 6.5-percent bonds due April 2021 declined five basis points, or 0.05 percentage point, to 6.09 percent, according to prices from Philippine Dealing & Exchange Corp.

According to the Asian Development Bank, Asia faces the twin threats of weakening global demand and rising currencies after Standard & Poor’s cut its US rating, and a sell-off in Italian and Spanish debt intensified risks to the world economic recovery.

“The capital flows coming into the region will continue, and that will at least put further pressure for regional currencies to strengthen, which also means bad news for exports,” Iwan Azis, head of the ADB’s Office of Regional Economic Integration, told Bloomberg.

“It’s not just the slowing down of the US economy, but also the strengthening of their currencies.” –Roderick T. dela Cruz, Manila Standard Today