Philippine Peso Weakens on Rate-Cut Speculation; Bonds Advance

The Philippine peso declined for a third day and bonds gained on speculation the central bank will cut its benchmark interest rate this week, reducing the allure of the currency.

The peso has risen 2.9 percent in the past six months, the best performer among emerging-market currencies, according to data compiled by Bloomberg. Bangko Sentral ng Pilipinas has scope to further ease monetary policy this year as inflation moderates and the nation tries to manage capital inflows, Governor Amando Tetangco said this month.

“Expectations of a rate cut have surfaced to help cool the currency’s gains and ensure growth momentum,” said Jonathan Ravelas, Manila-based chief market strategist at BDO Unibank Inc. (BDO) A weaker peso will aid exporters and boost the purchasing power from remittances of overseas workers, he said.

The peso slid 0.5 percent to 42.058 per dollar in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 5.6 percent.

The Philippine central bank cut the rate it pays lenders for overnight deposits twice this year, by a combined 0.5 percentage point to 4 percent, before leaving it unchanged in April and June. Consumer prices rose 2.8 percent in June from a year earlier, the slowest pace in three months.

Eleven economists forecast the central bank will keep the overnight borrowing rate at 4 percent, two expected a cut of 25 basis points and another a reduction of 50 basis points, a Bloomberg News survey showed before the July 26 meeting.

The yield on the government’s 5.875 percent bonds due March 2032 fell two basis points, or 0.02 percentage point, to 5.60 percent, according to prices from Tradition Financial Services.

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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