Philippine Bonds, Peso Drop on Concern Flood Will Spur Inflation

Philippine bonds fell on concern floods that have affected rice-producing regions and disrupted supplies of farm output will stoke inflation. The peso declined.

At least 92 people died as parts of Manila and nearby provinces were inundated last week and another tropical storm could hit the country this week, the state disaster agency said in a report today. The Philippines cut its rough-rice production forecast this year to 17.8 million tons from 18.5 million tons, Agriculture Secretary Proceso Alcala said today. The inflation rate rose to a six-month high in July, official data show.

“With the flooding and threats of more rain, we’re seeing some renewed concern on inflation,” said Malou Liwag, a senior vice president at Philippine National Bank (PNB) in Manila.

The yield on the 4.625 percent bonds due July 2017 rose two basis points, or 0.02 percentage point, to 4.73 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp.

The consumer-price index, around 39 percent of which is food, rose 3.2 percent last month from a year earlier, still at the lower end of the central bank’s 3 percent to 5 percent target range. Supply disruptions may cause a spike in food prices, central bank Governor Amando Tetangco said on Aug. 8.

Bangko Sentral ng Pilipinas cut its benchmark overnight borrowing rate to a record low 3.75 percent last month. The next policy meeting will be on Sept. 13. The central bank’s next move will be “data dependent,” Tetangco said on Aug. 10.

The peso fell 0.1 percent to 41.927 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 5.75 percent.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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