Philippine Peso Gains on Speculation Demand for Bonds Improved

The Philippine peso rose for the first time in three days amid speculation the slowest inflation in 29 months is bolstering demand for local-currency bonds.

The nation’s international reserves climbed to a record $77.8 billion in February, central bank data showed today. Consumer prices increased 2.7 percent from a year earlier, the smallest gain since September 2009 and less than the median 3.2 percent estimate in a Bloomberg News survey. The central bank expects inflation this year to average below 4 percent even as it predicts that oil prices will remain elevated, Governor Amando Tetangco said yesterday.

“Renewed demand for government securities eased the pressure on the peso, which started when we noticed some selling in bonds in recent days,” said Manu Goseco, treasurer at East West Bank Corp. in Manila. “As the concern on oil prices moderated and we see inflation looking very manageable, jitters in the bond market eased.”

The peso closed 0.2 percent higher at 42.862 per dollar, after declining 0.6 percent in the last two days, according to Tullett Prebon Plc.

The yield on the 5.875 percent bond due February 2032 fell nine basis points, or 0.09 percentage point, to 5.835 percent, data from Tradition Financial Services showed. The yield climbed to 5.925 percent yesterday, the highest since the notes were sold in January.

Inflation will breach the central bank’s target of 3 percent to 5 percent if oil rises above $150 a barrel, Tetangco told reporters yesterday. “At this point in time, our assessment is, stance of policy is appropriate.”

Bangko Sentral (PPCBON) ng Pilipinas cut its overnight borrowing rate by a quarter-point each in its first two meetings this year to 4 percent. The next policy meeting will be on April 19.

“The BSP is likely to pause for the remainder of the first half and probably consider another rate cut by the third quarter,” Goseco said.

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