Bloomberg News

Philippine Peso Gains on Inflation Outlook; Bonds Advance

October 19, 2011

Oct. 19 (Bloomberg) -- The Philippine peso rose toward a one-month high on speculation policy makers will favor currency gains over interest-rate increases as a means of reining in inflation. Ten-year government bonds advanced.

All 17 economists surveyed by Bloomberg predict the central bank will keep its benchmark overnight rate at 4.5 percent following a review tomorrow. Policy settings are appropriate and there is no compelling reason to shift while the government embarks on a $1.7 billion stimulus program, Bangko Sentral ng Pilipinas Governor Amando Tetangco said Oct. 16.

“The policy rate is about right given that inflation is still elevated,” said Arthur Michael de Castro, an analyst at Bank of the Philippine Islands in Manila. “We are still looking at a fairly strong third-quarter gross domestic product and more upside to the peso with support from strong remittances.”

The peso strengthened 0.3 percent to close at 43.158 per dollar in Manila, according to Tullett Prebon Plc. The currency reached 43.115 on Oct. 17, the highest level since Sept. 14. It may reach 42.2 by year-end, de Castro said.

Inflation threats have receded and the central bank has “weapons to stabilize the peso,” Monetary Board Member Felipe Medalla told reporters today in Manila.

Consumer prices rose an annualized 4.8 percent in September compared with 4.7 percent in August. Inflation was 5.2 percent in June, the fastest in more than two years.

The yield on the 6.375 percent security due January 2022 fell five basis points, or 0.05 percentage point, to 5.9 percent, according to Tradition Financial Services.

The nation’s balance of payments surplus narrowed to $719 million in September from $2.72 billion the previous month, the central bank reported today.

--With assistance from Clarissa Batino in Manila. Editors: Andrew Janes, James Regan

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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