Philippine Bonds Gain as Central Bank Set to Keep Rates on Hold

Philippine seven-year bonds advanced, driving the yield to a two-week low, on optimism the central bank will keep its benchmark interest rate at a record low. The peso was little changed.

Bangko Sentral ng Pilipinas will maintain its overnight borrowing rate at 3.5 percent today, according to all 20 economists in a Bloomberg News survey. Separately, they predict the monetary authority will leave the rate on hold until the third quarter before raising the measure by 25 basis points in the last three months. Inflation averaged 3.2 percent in 2012, compared with the central bank’s target of 3 percent to 5 percent, Governor Amando Tetangco said on Jan. 4.

“There seems no immediate risk of a rate increase given tame inflation and the upward pressure on the peso,” said Dave Estacio, an assistant vice president at First Metro Investment Corp. in Manila.

The yield on the 3.875 percent bonds due November 2019 fell nine basis points, or 0.09 percentage point, to 4.12 percent, the lowest level since Jan. 10, according to midday fixing prices at Philippine Dealing & Exchange Corp.

The peso was at 40.630 per dollar at the noon trading break, compared with 40.618 yesterday, prices from Tullett Prebon Plc show. It climbed to 40.550 on Jan. 14, the strongest level since March 2008. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, held at 4 percent.

Bangko Sentral, which cut rates four times last year, is scheduled to announce its policy decision at 4 p.m. local time.

“Low interest rates are fuelling prices of financial assets and pushing resources to non-tradable sectors, especially real estate,” the International Monetary Fund said in a statement yesterday after a Philippine review. The Washington- based institute forecasts growth of 6 percent this year from an estimated 6.5 percent in 2012.

To contact the reporter 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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