The Philippine peso retreated from a four-year high on speculation the central bank will cut interest rates as early as next week to cool currency gains that threaten exports.
Bangko Sentral ng Pilipinas has scope to ease monetary policy if needed, Governor Amando Tetangco said in an interview on July 13, after inflation slowed for a second month in June to 2.8 percent. Two of six analysts surveyed by Bloomberg so far predict the monetary authority will reduce its overnight borrowing rate for a third time this year on July 26 while the remaining four forecast the rate will be kept at 4 percent.
“There is a need to address the requirement of overseas workers and exporters,” said Jonathan Ravelas, Manila-based chief market strategist at BDO Unibank Inc. (BDO), the nation’s largest lender. “The central bank may cut rates to achieve this.”
The peso fell 0.2 percent to 41.743 per dollar in Manila, according to Tullett Prebon Plc. It touched 41.57 earlier, the strongest level since April 2008. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 45 basis points to 5.75 percent. Ravelas predicts the central bank will cut its policy rate to 3.5 percent next week.
Bangko Sentral banned overseas funds from its special deposit accounts starting this month and on July 13 lowered the rates on the facility that held 1.64 trillion pesos ($39 billion) in deposits as of June 22.
“Strong capital flows in the face of manageable inflation is a more near-term concern,” Tetangco said yesterday. A range of between 42 and 43 is appropriate for the peso, the governor said on July 13.
The yield on the 6.5 percent bonds due April 2021 fell three basis points, or 0.03 percentage point, to 5 percent, according to Tradition Financial Services.
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