REFILE-MONEY MARKETS-Dollar strains in Philippines easing gradually

(Refiles to fix formatting)

* Slow peso appreciation to keep c’bank selling dlr forwards

* Dollar liquidity more important for banks as year ends

* Cbank to tolerate underlying PHP appreciation – Westpac

By Masayuki Kitano

SINGAPORE, Dec 7 (BestGrowthStock) – An acute dollar shortage has
eased in Manila, with peso forwards reflecting only light
strains on Tuesday as dealers anticipated the Philippines
central bank will unlikely choke dollar liquidity like it did
last month.

The rapid pace of appreciation in emerging Asian
currencies came to a halt in November and strength in local
currencies is only slowly returning so far in December.

With currency volatility less of a threat and dollar
liquidity more important as the year-end approaches, monetary
authorities in the Philippines will probably not stop
rollovers of maturing FX swaps, a tactic that market players
say was employed last month to break the peso’s rise versus
the dollar.

“Things have kind of normalised now,” said an FX
strategist for a U.S. bank in Singapore. “But there is still
some strains in the system,” he said, noting that dollar/peso
forwards were still trading at dollar discount levels — which
implies that dollar interest rates are higher than the peso.

* Dollar/peso forwards would not normally trade at a
dollar discount, given that that Fed’s policy rate is near
zero while the Philippine central bank’s policy rate is 4
percent.

* But the shortage triggered by the central bank last
month meant that local banks were suddenly left short of
dollars and had to raise them artificially via FX swaps which
pushed forward points below spot rates.

* One-month dollar/peso forwards were at a
discount of minus 5 points to the spot rate on Tuesday
compared to minus 8 last month indicating the money market
strains were gradually ebbing before an expected pick up in
year end remittances.

* The peso too has strengthened slightly from a
2-1/2 month low of 44.23 per dollar so far this month.

* Sean Callow, a senior currency strategist at Westpac in
Sydney said the central bank’s latest actions meant
authorities haven’t changed its broad stance on the peso which
is to tolerate an underlying appreciation trend but sell
dollars aggressively if global risk aversion sparked a flight
from the peso.

* A drawback for the central bank to continue taking such
a tactic is that the situation would not be ideal for local
banks that need dollar liquidity, the strategist said.
(Additional reporting by Saikat Chatterjee; Editing by Kevin
Plumberg)

REFILE-MONEY MARKETS-Dollar strains in Philippines easing gradually