Philippine Peso Snaps 5-Day Drop as Yield Premium May Draw Funds

The Philippine peso halted a five- day decline on speculation Japan will step up monetary easing, spurring demand for higher-yielding assets.

Japan’s Liberal Democratic Party reclaimed power in an election yesterday and its leader, Shinzo Abe, has called for “unlimited easing” by the Bank of Japan to revive economic growth. The Philippine central bank’s benchmark interest rate of 3.5 percent compares with a maximum 0.25 percent in the U.S. and Japan. Bangko Sentral ng Pilipinas left its rate unchanged last week,, after cutting it by a total of 100 basis points this year. Government bonds due 2031 held steady today.

“More monetary stimulus by Bank of Japan will support Asian currencies,” said Enrico Tanuwidjaja, an economist at Royal Bank of Scotland Group Plc in Singapore. In the Philippines, “the strong growth story, and not just remittances, will also be good for the currency,” he said.

The peso rose 0.1 percent to 41.045 per dollar in Manila, according to Tullett Prebon Plc. The currency reached 40.840 on Nov. 29, the strongest level since March 2008. It’s advanced 6.8 percent this year, a performance second only to South Korea’s won among Asia’s 11 most-used currencies. RBS predicts the peso will advance to 40.90 by the end of this month, Tanuwidjaja said.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was unchanged at 4.4 percent.

Remittances from Filipinos working overseas, transfers that are equivalent to about 10 percent of the nation’s gross domestic product, increased 8.5 percent in October from a year earlier, the monetary authority reported today. The median in a Bloomberg News survey of economists was 6 percent.

Gross domestic product rose 7.1 percent in the third quarter from a year earlier, the most in two years, official data showed last month.

The yield on the government’s 8 percent bonds due July 2031 was unchanged at 5.55 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: James Regan at jregan19@bloomberg.net

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