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Philippine peso falls after new central bank governor says it is near top end of band

Manila

THE Philippine peso swung to a loss after the new central bank governor indicated that the currency is already trading close to the upper end of a band while reiterating that there's scope to ease monetary policy.

The peso fell 0.7 per cent to 52.55 against the US dollar at 2.45pm in Manila, the only loser among emerging market currencies in Asia on Tuesday, after Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno said the peso is trading within the government's forecast of 52 to 55 to a dollar.

In an interview with ABS-CBN News Channel, the former budget secretary known for his pro-growth policies said the central bank "won't intervene as long as it's within reasonable amount or bounds".

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Mr Diokno told the TV channel that slowing inflation, dovish comments from the US Federal Reserve and stable oil prices give the central bank room to cut the policy rate as well as the 18 per cent ratio of cash that banks must hold in reserve.

"It could be one percentage point every quarter for the next four quarters," he said on the reserve ratio.

The cost of government borrowing fell at an auction on Tuesday following Mr Diokno's remarks, deputy treasurer Erwin Sta Ana told reporters in Manila. The average yield of the 10-year bond fell to 6.196 per cent from 6.875 per cent coupon in January when the debt was first issued.

Steven Michael Reyes, head of trading and sales at Rizal Commercial Banking Corp, said Mr Diokno seems to be tolerant of a weaker peso, given the currency's forecast range he disclosed. Rizal Bank expects the peso to trade between 51.50 and 54.65 per dollar this year, with room to appreciate by year-end.

"The market will continue to watch for signs whether the current BSP environment will be consistent with what it was before, or whether there will be changes."

"The level is not important; the question is how you smooth out volatility," said Jonathan Ravelas, chief market strategist at BDO Unibank Inc, the nation's largest lender. "It's still a wait-and-see mode. We still have to look at what they will say." BLOOMBERG