Peso sheds 50 cents to close at its weakest this year

The peso closed at its weakest for the year on Thursday, following the release of US Federal Open Market Committee (FOMC) minutes indicating that some of its members are already considering tapering off stimulus as early as June. Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said an early end to the US’ bond-buying program – dubbed quantitative easing (QE) – will result in “a more moderate flow of speculative capital” into emerging markets like the Philippines weakening the peso. A dollar fetched P41.69 by trade end, 51.5 centavos more than the P41.175 it got a day previous. Thursday’s close was the peso’s weakest since the October 1 of last year’s P41.76. “The peso weakened on discussions of letting go of QE by June, corporate demand and withdrawals from the local bourse,” a trader said. The benchmark Philippine Stock Exchange dropped 70.69 points to 7,314.38 on Thursday also on QE talks. In an ambush interview, Guinigundo told reporters: “An early normalization of policy in the US should be a welcome development.” “Bottom line is, risk aversion to the US could recede and propensity of capital inflows to the Philippines and other emerging markets should recede as well,” he explained. Emerging market economies, which are hurtling forward amid stuttering growth in the US, have attracted an inflow of speculative capital. Central bank data show portfolio flows – also known as “hot money” given the ease with which they enter and exit economies – netted $1.13 billion in April, up by 239 percent from $333.43 million in the same month last year.   Excessive hot money inflows have worried various central banks, including the Bangko Sentral which is known for its bias against a volatile exchange rate. The trader, however, surmised that tapering off QE will only affect foreign exchange gradually. “In the short term, there should be a buying back of the dollar. But I doubt that Fed would be withdrawing QE more in a gradual basis,” he said. Over $1.345 billion changed hands on Thursday, above the $649.7 million the day previous. — BM, GMA News