Bloomberg News

Philippine Peso Gains on Interest-Rate Outlook; Bonds Advance

March 30, 2012

The Philippine peso rose, halting a two-day loss, after the central bank signaled it will refrain from cutting interest rates, helping the nation maintain its yield advantage over developed countries. Bonds advanced.

The peso rallied this quarter by the most since the three months through September 2010 as speculation the country will receive a credit-rating upgrade buoyed demand for Philippine assets. The central bank is seeing “modest, manageable” second-round inflation and pausing from rate cuts is “on the table,” Assistant Governor Cyd Amador said yesterday. Philippine 10-year bonds yield 364 basis points more than similar-maturity Treasuries, data compiled by Bloomberg show.

“There are no more rate cuts in the offing and to that effect it is positive for the currency,” said Radhika Rao, an economist at Forecast Pte in Singapore. “They are not going to narrow the rate differential over the dollar any further. Inflows will remain positive.”

The peso advanced 0.2 percent to 42.917 per dollar at the close in Manila, extending its quarterly gain to 2.2 percent, according to Tullett Prebon Plc. The currency rose 0.1 percent for the week and fell 0.4 percent in March. The peso’s one-month implied volatility, which measures exchange-rate swings used to price options, dropped 36 basis points today to 5.54 percent.

Bangko Sentral ng Pilipinas has lowered the overnight borrowing rate by a total of 50 basis points this year to 4 percent. Policy makers next meet to review borrowing costs on April 19.

The yield on the 15 percent bonds due March 2022 dropped nine basis points, or 0.09 percentage point, to 5.8 percent today, according to noon fixing prices from Philippine Dealing & Exchange Corp. The rate fell 13 basis points this week and was up 35 basis points for the quarter.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.

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


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