Peso flat due to lingering debt issues in Europe

MANILA, Philippines—The peso moved sideways on Thursday as some investors were enticed by prospects of rising interest rates in Asia, while others were being discouraged by the lingering debt woes in the Euro zone.

The local currency closed at 42.88 against the US dollar on Thursday, up by one centavo from Wednesday’s finish of 42.89:$1.

Intraday high hit 42.78:$1, while intraday low settled at 42.91:$1. Volume of trade reached $934.94 million from $1.102 billion previously.

Traders said investors were expecting interest rates in Asia to rise in the months ahead after central banks in the region started raising their key policy rates to fight inflation.

Higher policy rates are meant to influence bank deposits and lending rates to rise as well, with the end goal of encouraging savings and tempering demand for loans to slow down inflation. Another consequence of higher policy rates, however, is the increase in yields of portfolio instruments, thereby attracting foreign investors to place funds in Asia.

In the case of the Philippines, the Bangko Sentral ng Pilipinas has already raised its key policy rates twice this year as inflation has accelerated since the start of 2011 from last year.

But while rising interest rates are attracting more funds into Asia, this is partially offset by the debt crisis in the Euro zone. Traders said the crisis was somewhat dampening appetite for investments in emerging markets in general, including those in Asia.

On Wednesday, Moody’s Investors Service downgraded the credit rating of Portugal to junk status given the country’s burgeoning debt.