Philippine Peso Drops by Most in a Week on SDA Rate-Cut Outlook

The Philippine peso fell by the most in a week on speculation the central bank will reduce the interest rate on its special-deposit accounts for a third time this year, damping inflows. Government bonds due 2037 advanced.

The currency completed a second weekly decline after Bangko Sentral ng Pilipinas Governor Amando Tetangco said last week the option of reducing the rate it pays on 1.9 trillion pesos ($46 billion) in the SDAs will be retained. The central bank, which reviews policy on April 25, is monitoring capital flows after the Philippines achieved an investment-grade ranking from Fitch Ratings last month, Tetangco said April 5.

“There are a lot of expectations that the BSP will make another adjustment in the SDA rate this month,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “Also, some investors are taking profit on the attractive asset prices in the Philippines.”

The peso declined 0.5 percent to 41.265 per dollar at the close in Manila, according to Tullett Prebon Plc. That was the biggest drop since April 4. It touched 41.315 on April 8, the weakest level since Nov. 16, and has fallen 0.2 percent this week. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose six basis points to 4.84 percent.

Fitch raised the rating on the nation’s long-term foreign currency-denominated debt one level to BBB- from BB+ on March 27. The next day, Tetangco said the central bank is preparing to announce a new set of “liberalization measures” to encourage outflows as early as April.

The yield on 6.125 percent bonds due October 2037 fell five basis points, or 0.05 percentage point, to 4.08 percent, according to Tradition Financial Services. The rate rose eight basis points this week and touched 3.71 percent on April 2, the lowest level since the notes were sold in October.

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