By Lailany P. Gomez Reporter and Maricel E. Burgonio, The Manila Times, Philippines
Feb. 20--The US central bank's surprise move to raise one of its key lending rates sent Asian financial markets careening on fears that the global stimulus measures may begin unwinding sooner than expected.
At the Philippine Dealing System, the peso on Friday shed eight centavos against the US dollar, driven by risk aversion as a result of the Federal Reserve's decision Thursday night to hike the primary credit rate on emergency loans to banks to 0.75 percent from 0.5 percent.
A currency trader said the peso was still resilient compared with other currencies across Asia, as the Philippine unit traded within an acceptable range.
The local currency opened at 46.30 and traded to a high of 46.39 and a low of 46.26 before closing at 46.28. Trading volume reached $771.82 million.
Traders said the peso might move between 46 and 46.80 against the greenback, with risks biased to the high side.
Federal Reserve Chairman Ben Bernanke said the increase reflected the easing of the financial crisis that resulted from a home-mortgage meltdown.
"It suggests [the] Fed sees inflation ahead while the economy can broadly accommodate their proposed readjustments. [The Fed hike] gives us additional space before we finally exit," Diwa Guinigundo, deputy governor of the Bangko Sentral ng Pilipinas (BSP) said Friday.
Citing manageable domestic inflation, the Philippine central bank had said that it has policy space to maintain the liquidity measures it put in place at the height of the global financial crisis.
Inflation edged down slightly in January to 4.3 percent from December's 4.4 percent. Last month's average price increase also was marginally below the BSP's forecast for the month of between 4.5 percent and 5.4 percent.
The BSP has been saying that its primary consideration for the timing and speed of the exit strategy would depend on the inflation outlook.
It had raised the budget for the rediscounting facility and reduced its reserve requirement on banks to prevent the global credit crunch from taking hold in the domestic market.
Philippine share prices on Friday dropped for a second day as investors saw the increase in the Fed's rate as too early given the slow recovery of the global economy.
At the Philippine Stock Exchange, the composite index shed 0.7137 percent or 21.41 points to 2,978.53. The all-shares index also gave up 0.6741 percent or 12.83 points to 1,890.57.
Only the financial sector bucked the trend, rising 1.194 percent or 7.50 points to 635.64. Gainers trailed losers, 35 to 75. Trading volume reached 1,051,486,532, valued at P2.339 billion.
The fall in Philippine share prices was in line with the drop of other Asian stocks after the US central bank unexpectedly raised a key rate for emergency loans.
"This is a sign that we're going to face withdrawing of stimulus measures. The market has no confidence in economic recovery. It's [increase in rates] premature for them," Jun Calaycay of Accord Capital said.
He said the Fed's decision would send banks borrowing in the capital markets.
US consumers are also expected to put on hold their expenses amid rising consumer prices. The expected decline in consumption in the US would affect Philippine export earnings.
"With the rise in consumer prices, [Americans] have to rationalize spending, which would lower consumption and affect our exports," Calaycay said.
Elsewhere in Asia, Tokyo tumbled 2.05 percent, or 212.11 points to 10,123.58 as investors digested the impact of the Fed decision.
The dollar rose to a five-week high against the yen and a fresh nine-month high against the euro, which is under pressure because of lingering concerns of contagion stemming from Greece's fiscal woes.
However, the greenback later trimmed gains as Asian investors took profits. In afternoon trade the dollar was at 91.76 yen from 91.80 in New York Thursday.
The euro fell as low as 1.3443 dollars, its weakest since May 18, before later fetching 1.3484 dollars from 1.3527 in New York and 123.73 yen from 124.25.
Hong Kong's stock market tumbled 2.59 percent, or 528.13 points to end at 19,894.02, reflecting broad market concerns of a possible increase in interest rates given the Hong Kong dollar's peg to the US dollar.
Sydney closed down 0.43 percent, or 19.8 points, at 4,635.1.
Shanghai and Taipei remain closed until Monday for the Lunar New Year break.
Seoul closed down 1.68 percent, or 27.29 points at 1,593.90.
Singapore closed 12.05 points, or 0.44 percent, lower at 2,757.14.
Kuala Lumpur ended down 0.10 percent or 1.33 points, to 1,257.67.
Jakarta lost 0.22 percent, or 5.66 points, to 2,554.37.
Bangkok closed 0.69, or 4.78 points, higher at 700.44.
