Bloomberg News

Philippine Peso Pares Weekly Loss; Bonds Gain on Policy Rate Cut

July 26, 2012

The Philippine peso advanced, paring a weekly decline, after European Central Bank President Mario Draghi pledged to preserve the euro. Bonds gained after a surprise interest-rate cut by the central bank.

Draghi suggested yesterday policy makers may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the common currency. The peso’s gains may be limited after the Philippine monetary authority lowered interest rates yesterday for a third time this year to a record low of 3.75 percent from 4 percent, according to Radhika Rao, an economist at Forecast Pte.

“The entire idea that ECB is going to do something is supportive of risk,” said Singapore-based Rao. Philippine authorities “hope yesterday’s rate cut will slow speculative inflows,” she said.

The peso appreciated 0.3 percent to 41.97 per dollar as of 9:47 a.m. in Manila, reducing this week’s loss to 0.3 percent, according to Tullett Prebon Plc. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged today at 6.5 percent and increased 90 basis points, or 0.90 percentage point, from last week.

The yield on the government’s 5.875 percent bonds due March 2032 dropped four basis points to 5.56 percent today, for a weekly decline of six basis points, according to prices from Tradition Financial Services.

The peso has strengthened 4.4 percent this year, the biggest gainer among Asia’s 11 most-traded currencies, data compiled by Bloomberg show.

Central bank Deputy Governor Diwa Guinigundo said yesterday the interest-rate cut will help slow the currency’s gains.

The decision to reduce borrowing costs is also “a pre- emptive move against the risks associated with the global slowdown,” Governor Amando Tetangco said at a briefing yesterday.

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

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


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