Bloomberg News

Philippine Bonds Advance as First Rate Cut Since 2009 Predicted

January 12, 2012

Jan. 12 (Bloomberg) -- Philippine bonds gained, pushing yields to a three-week low, on speculation the central bank will cut borrowing costs for the first time in two years next week as inflation cools. The peso weakened.

Bangko Sentral ng Pilipinas will lower its benchmark rate to 4.25 percent from 4.5 percent on Jan. 19, according to all six economists in a Bloomberg News survey. The central bank may ease monetary policy this quarter as inflation slows, Governor Amando Tetangco said this week. The monetary authority’s overnight borrowing rate was last reduced in July 2009.

“Expectations of a rate cut as early as this month are supporting bonds,” said Dave Estacio, assistance vice president at First Metro Investment Corp. in Manila.

The yield on the 5.75 percent bond due October 2021 fell two basis points, or 0.02 percentage point, to 5.16 percent, according to Tradition Financial Services. That’s the lowest level since Dec. 20.

The inflation rate dropped to an 11-month low in December as gains in food and utility costs slowed. Consumer prices rose 4.2 percent from a year earlier, after a 4.8 percent increase in November, the National Statistics Office said Jan. 5.

Bangko Sentral kept its benchmark interest rate unchanged at 4.5 percent for a fifth meeting in December after two increases in 2011. It also raised the reserve requirements for banks twice last year, bringing the ratio to 21 percent.

The peso weakened as concern a sovereign-debt crisis will pull Europe into a recession dimmed the outlook for the region’s exports. The currency lost 0.1 percent to 44.045 per dollar, according to Tullett Prebon Plc.

--With assistance from Karl Lester M. Yap in Manila. Editors: Anil Varma, James Regan

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.

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


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