The Philippine peso dropped as a worsening recession in Spain added to concerns about Europe’s debt crisis, reducing demand for emerging-market assets. Bonds rose on bets the central bank will cut interest rates tomorrow.
The MSCI Asia Pacific Index (MXAP) of shares declined for a fourth day, tracking an overnight drop in European and U.S. equities. Spain’s gross domestic product fell 0.4 percent in the three months through September from the previous quarter, matching the contraction in the period to June, the central bank reported yesterday. Bangko Sentral ng Pilipinas will reduce its key borrowing rate by a quarter of a percentage point to a record- low 3.5 percent tomorrow, according to 14 of 21 analysts surveyed by Bloomberg. The rest predict no change.
“We’re expecting selling of risky assets including the Philippine peso as negative news in Europe translates to stock markets being sold down,” said Rafael Algarra, executive vice president of financial markets at Security Bank Corp. in Manila.
The peso declined 0.1 percent to 41.363 per dollar as of the close in Manila, data from Tullett Prebon Plc showed. One- month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 5 percent.
The yield on the 5.875 percent bonds due March 2032 fell three basis points, or 0.03 percentage point, to 5.71 percent in Manila, according to Tradition Financial Services.
The Philippines had a budget deficit of 34.85 billion pesos ($841 million) in September, with the nine-month shortfall widening to 106.06 billion pesos, according to government data today. Revenue last month rose 0.9 percent while spending climbed 14.1 percent.
The Philippines has ample liquidity to support economic expansion, central bank Deputy Governor Nestor Espenilla said in a speech in Manila today.
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