Bloomberg News

Philippine Bonds, Peso Rise as Purisima Flags Deficit Progress

October 25, 2011

Oct. 25 (Bloomberg) -- Philippine bonds rose and the peso strengthened after Finance Secretary Cesar Purisima said the budget deficit for the first nine months of the year was “way below” what was planned, even after a shortfall in September.

His comments, made yesterday after the close of trading in local financial markets, were validated after the government reported that the deficit was 18.5 billion pesos ($429 million), taking the nine-month gap to 52.99 billion pesos. That compares with a targeted 234.35 billion pesos for the first three quarters and a shortfall of 259.79 billion pesos in the year- earlier period, according to an e-mailed statement today.

“While a small deficit is already factored in, this supports the view that the government doesn’t need to borrow as much,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. in Manila. “The market is more comfortable with the inflation outlook, supporting expectations that interest rates will remain low in the foreseeable future.”

The yield on the 8.125 percent notes due December 2035 fell eight basis points, or 0.08 percentage point, to 7.17 percent at 4:16 p.m. in Manila, according to Tradition Financial Services. The decline was five basis points before the announcement.

The peso rose 0.3 percent to 43.138 per dollar at the close of trading, prices at Tullett Prebon Plc showed.

Auction Yield

The Bureau of the Treasury sold all the 9 billion pesos of 7.625 percent September 2036 debt at an average yield of 7.131 percent in an auction, fetching bids almost three times the notes on offer. The government’s borrowing cost fell from 7.51 percent, when the notes were first sold last month.

This year’s deficit may still reach 260 billion pesos as state agencies catch up on spending, Budget Secretary Butch Abad said in a statement today. Spending in the first nine months fell 7.3 percent to 1.07 trillion pesos as the government lagged its expenditure plan by about 205 billion pesos, according to today’s report.

Bangko Sentral ng Pilipinas kept its overnight borrowing rate at 4.50 percent on Oct. 20 and the final policy meeting of this year will be on Dec. 1. The inflation outlook is “slightly tilted to the downside” and latest forecasts show the target of 3 percent to 5 percent until 2013 will be met, Governor Amando Tetangco said last week.

--Editors: James Regan, Ven Ram

To contact the reporters responsible for this story: Clarissa Batino at cbatino@bloomberg.net

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


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