Philippine Bonds Gain as Economists Forecast Interest-Rate Cut

Philippine three-year bonds rose for a second day on speculation the central bank will lower its benchmark interest rate today for a fourth time this year.

Bangko Sentral ng Pilipinas will reduce its overnight borrowing rate by a quarter of percentage point to a record-low 3.5 percent, according to 14 of 21 economists in a Bloomberg survey. The rest expect no change. There’s room to cut the rate further, Governor Amando Tetangco said this month, as policy makers seek to support growth while curbing fund inflows. The outlook for inflation remains ‘benign,’ he said Oct. 10.

“The central bank will probably cut rates as inflation is not an issue while the global economic trend remains uncertain,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. (RCB) in Manila. “For the market, a rate cut is on the table, whether today or the next meeting.”

The yield on the 11.875 percent securities due August 2015 fell 7 basis points, or 0.07 percentage point, to 3.97 percent, the lowest level since Oct. 8 and the biggest decline in a month, according to midday fixing prices at Philippine Dealing & Exchange Corp.

Inflation slowed to 3.6 percent in September from 3.8 percent in August, which was the fastest pace in seven months, government data show. The central bank has cut its benchmark rate three times this year.

“If they decide not to cut today, we will probably see the peso strengthen further and some knee-jerk increase in bond yields,” Mercado said. “But then, this will only be temporary because that would mean the expectations of a rate cut in December will be greater.”

The peso was little changed at 41.342 per dollar at the midday break from 41.363 yesterday, according to prices from Tullett Prebon Plc. It has gained 0.1 percent this week. One- month implied volatility, a measure of exchange-rate swings used to price options, was little changed at 5 percent.

Philippine markets are shut for a holiday tomorrow. The next policy meeting will be on Dec. 13.

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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