Bloomberg News

Philippine Peso Declines on Europe Debt Concerns; Bonds Advance

October 11, 2011

Oct. 11 (Bloomberg) -- The Philippine peso fell, reversing earlier gains, after European Central Bank President Jean-Claude Trichet reignited concerns over the extent of the debt crisis.

The currency snapped a four-day advance after Trichet said today the turmoil in the euro region has reached “systemic dimension,” threatening its financial system. Philippine bonds rose after Indonesian policymakers unexpectedly cut borrowing costs today, the first major Asian central bank to do so. A government report earlier in the day showed Philippine exports slumped in August by the most since September 2009.

“Exports and growth have already been affected,” said Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc. in Manila. “We don’t think the central bank will cut rates immediately but definitely there’s no room for tightening.”

The peso dropped 0.1 percent to 43.435 per dollar in Manila, according to Tullett Prebon Plc. The currency earlier reached 43.180, the highest level since Sept. 14, after the President announced an economic stimulus plan to revive growth.

President Benigno Aquino approved the fiscal package late yesterday, and his spokesman Ricky Carandang said details will be announced tomorrow. Exports dropped 15.1 percent in August from a year earlier, more than the 6.1 percent decline forecast by economists in a Bloomberg News survey.

“The government hasn’t spent enough to boost growth and businesses are looking forward to the stimulus,” said Marc Bautista, head of research in Manila at Metropolitan Bank & Trust Co. “We still have large inflows from remittances, so a stimulus should also support sentiment” on the peso, he said.

Bonds Gain

The Philippines posted a budget surplus in August, helping narrow the eight-month deficit to 34.5 billion pesos ($799 million), from 228.10 billion pesos in the same period in 2010. The full-year target is a shortfall of 300 billion pesos.

The government may lower its economic growth estimates, Budget Secretary Butch Abad said in a phone interview yesterday, without elaborating. The economy may expand 4.4 percent this year, ATR’s Lorenzo said, compared with her previous forecast for 6 percent.

The yield on the government’s 8 percent bonds maturing in July 2031 dropped 13 basis points, or 0.13 percentage point, to 6.86 percent, according to Tradition Financial Services. The price rose 1.44, or 144 pesos per 10,000 pesos face amount, to 112.163.

The nation’s dollar-denominated bonds also climbed. The yield on the 9.5 percent security due October 2024 fell four basis points to 5.08 percent, the lowest level since Sept. 21, according to prices from Royal Bank of Scotland Group Plc. The price increased 0.50, or 50 cents per $1,000 face amount, to 141.50.

The government plans to buy back $1.5 billion of foreign- currency bonds, including the 2024 notes, on Oct. 13 to manage liabilities. About $17.5 billion of debt are eligible for tender, Finance Secretary Cesar Purisima told reporters yesterday.

--Editor: Simon Harvey, Anil Varma

%PHP

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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