Philippine Peso Hits Four-Year High Before Interest-Rate Review

The Philippine peso reached a four- year high ahead of a central bank meeting tomorrow at which interest rates are forecast to be unchanged after three reductions this year. Bonds weakened.

The currency climbed as much as 0.3 percent before a Federal Reserve meeting that that may lead to a third round of asset purchases, boosting the supply of dollars. The two-day meeting concludes tomorrow. Bangko Sentral ng Pilipinas will keep its overnight borrowing rate at a record-low 3.75 percent tomorrow, according to 16 of 20 economists in a Bloomberg News survey. Four forecast a cut to 3.50 percent.

“The peso is supported by expectations that policy makers will not cut the rate tomorrow,” said Radhika Rao, an economist at Forecast Pte in Singapore. “Speculation that advanced economies, including the U.S., will roll out more stimulus is boosting emerging markets. Given the Philippines’ strong performance, we think it’s going to continue to benefit from these inflows.”

The peso closed little changed at 41.575 per dollar from 41.570 yesterday, data from Tullett Prebon Plc showed. It touched 41.445, the strongest level since April 2008. One-month implied volatility, which measures exchange-rate swings used to price options, declined 20 basis points to 5.5 percent.

Inflation Forecasts

Authorities are worried about the impact of excessive capital flows and the effects of a strong currency that the pace of peso gains has been moderated by intervention, Rao said.

Bangko Sentral will probably raise inflation forecasts during this week’s meeting after monsoon rains and flooding last month disrupted the supply of some food items and pushed prices higher, Deputy Governor Diwa Guinigundo said on Sept. 7. Inflation accelerated to 3.8 percent in August, the fastest pace in seven months, official data show.

The yield on the 5 percent bonds due August 2018 rose two basis points, or 0.02 percentage point, to 4.5 percent, according to Tradition Financial Services.

The Philippine central bank cut its policy rate for the third time this year in July. The last two scheduled reviews in 2012 are Oct. 25 and Dec. 13. Barclays Plc predicts the Fed will announce monthly bond purchases of $50 billion tomorrow.

To contact the reporters on this story: Clarissa Batino at cbatino@bloomberg.net

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

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