Philippine peso falls as Fed focus eclipses Duterte’s promises

The Philippine peso declined amidst President Rodrigo Duterte’s tax plans. (AFP pic)

MANILA: The Philippine peso shrugged off President Rodrigo Duterte’s tax plans, with the currency declining as traders focused on falling bets for an aggressive easing by the Federal Reserve this month. Stocks rose after staying lower for the most part of the day.

“The dollar is generally stronger as prospects of a 50-basis point cut by the Fed next week is fading,” said Andre Ibarra, senior vice president and chief dealer at Security Bank Corp. in Manila. The peso’s fall has “nothing to do” with Duterte’s state of the nation address, he said.

Duterte, in his annual speech to Congress on Monday, pushed for bills that would cut corporate taxes, streamline incentives that cost the government billions of pesos in foregone revenue, and raise levies on tobacco and alcohol products. He didn’t discuss a plan to shift to a federal form of government, a move that would require changing the Constitution.

In the long term, analysts said these would boost markets.

“It’s good that the focus is on the economy and tax reform in the last stretch of his term,” said Gerard Abad, chief investment officer at AB Capital & Investment Corp. in Manila. “By not mentioning federalism, Duterte has removed one source of noise that investors would rather not talk about. This is a positive development.”

A lot is riding on the president’s promises. The benchmark stock index just entered a bull run last week and the peso is among the top performers in Asia this year. With the trade war hurting the global outlook, investors are looking for a catalyst to sustain the rally.

Duterte’s speech “reinstates our view that the government is on track to deliver the growth we expect for the next twelve months,” Hazel Tanedo and Justin Cimafranca, analysts at Credit Suisse Group AG in Manila, wrote in a report.

History

The peso strayed from its historical performance of gaining in nine of the last 10 years after the president delivers the speech. Equities, which usually rise the day after the address based on data going back to 1987, reversed an earlier loss of as much as 0.3% to end the session higher at 8,251.46.

Duterte’s speech “sends a good signal on the seriousness of the administration to further improve the fiscal performance of the government,” said Michael Ricafort, chief economist at Rizal Commercial Banking Corp. in Manila. Another “credit rating upgrade could happen in the coming months or years,” he said.