The devaluation of the Chinese yuan would lead to weaker currencies across Asia, including the Philippine peso, pressuring local firms with high US dollar debt exposure, banks said.
In an Aug. 12 report, Citi Research said “[m]ost in Asia will accommodate FX (foreign exchange) weakness as initial response” to China’s decision to devalue its tightly controlled currency.
“Given growth risks, lack of inflation and FX mismatches, South Korea, Taiwan, Thailand and the Philippines will accommodate [even ‘encourage’ if they don’t get enough of it] FX weakness in response,” Citi said.
It added that the Philippines’ central bank may even cut banks’ reserve requirement ratio (RRR).
“We are wary of calling for immediate rate cuts elsewhere just yet, though those that haven’t cut yet—the Philippines (starting with RRR) and Taiwan—are candidates,” Citi said.
In a separate report, Goldman Sachs named three Philippine firms with high US dollar debt exposure that may suffer on the back of weak Asian currencies.
The three companies identified by Goldman Sachs were Energy Development Corp. (EDC), Philippine Long Distance Telephone Co., and SM Prime Holdings Inc. Ben O. de Vera