Philippine Peso Gains on Odds for Fed Stimulus; Bonds Decline

The Philippine peso rose from a three-week low on speculation the Federal Reserve will take further measures to boost the U.S. economy, stoking appetite for emerging-market assets.

The Philippine central bank unexpectedly cut interest rates for a third time this year to a record low of 3.75 percent from 4 percent, according to a statement in Manila today. The decision was announced after the local currency market closed. Data yesterday showing a drop in new home sales in America from a two-year high supports the case for the Federal Reserve to take further steps to stimulate growth, according to Sim Moh Siong of Bank of Singapore Ltd.

U.S. economic data are “supporting risk appetite,” said currency strategist Sim. The Philippine central bank “is quite vigilant about the peso’s strength given it’s been outperforming Asian currencies,” he said.

The peso rose 0.2 percent to 42.100 per dollar in Manila, according to Tullett Prebon Plc. The currency touched 42.233 yesterday, the weakest level since June 29. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 6.5 percent.

The peso has appreciated 4 percent this year, the best performance among Asia’s 11 most-active currencies, data compiled by Bloomberg show.

The central bank’s decision to lower borrowing costs by a quarter percentage point was predicted by four of 16 economists in a Bloomberg News survey. Eleven forecast no change, while one predicted a half-a-percentage-point cut.

Bangko Sentral ng Pilipinas 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.

The yield on the government’s 5.875 percent bonds due March 2032 increased three basis points, or 0.03 percentage point, to 5.61 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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