What?

The Philippine peso turned firmer after hitting a near six-week low against the dollar on Thursday on measures by the central bank to slow down the currency’s appreciation, Reuters reported. The peso weakened to 41.26 per dollar on Thursday, the lowest since Nov. 19 after the central bank governor said on Wednesday that it will impose limits on local and foreign banks’ forward positions in currencies as a way to manage speculation.. However it ended at 41.075 against the dollar on the last day of trading in 2012, up 6.7% for the year and becoming the best performing currency in Southeast Asia.

Why?

According to Reuters, the peso had weakened earlier in the week but it turned higher as the measures are unlikely to hurt the bright longer-term outlook, dealers told Reuters. “Investors reduced their dollar short positions as not to ruin a long weekend because of the new measure and the U.S. fiscal cliff concerns,” said a foreign bank dealer in Manila, referring to U.S. spending cuts and tax increases,” said a foreign bank dealer in Manila.

What’s next?

Bangko Sentral ng Pilipinas imposed a ceiling for non-deliverable forwards for local lenders at 20 percent of capital, and 100 percent for foreign entities, Governor Amando Tetangco said in a Dec. 26 briefing. Banks have two months to comply with the regulation, which will be reviewed after six months, Tetangco said.

“Excess liquidity and lingering positive sentiment will remain as drivers, but it is difficult to replicate the same results next year as we have become relatively expensive,” said Dalmacio Martin, senior vice president at BDO Unibank Inc. (BDO), the nation’s largest lender. “Regulatory prudential measures will also limit returns.”

What to do?

The peso has gained this year on strong inflows to the country’s stocks and bonds with forecasts of sustained and robust domestic economic growth. “[Pretty much]fundamentals are still intact. I prefer to wait for the bounce in the dollar and sell it,” a dealer told Reuters, adding he would build up short positions in the dollar when it

rises to 41.50 versus the peso.