Philippine Peso Falls on Speculation of SDA Rate Cut; Bonds Gain

The Philippine peso fell, halting a three-day advance, while government bonds and stocks rose on speculation the central bank will cut the interest rate on its special deposit accounts for a third time this year.

Bangko Sentral ng Pilipinas, which meets April 25 to review policy, reduced the rate it pays on 1.9 trillion pesos ($46 billion) in its special accounts by about half a percentage point each in January and March. The central bank isn’t ruling out a further cut in the so-called SDA rate and is “always thinking of additional measures” to manage liquidity, Felipe Medalla, a member of the authority’s Monetary Board, said on April 18. The Philippine Stock Exchange Index rose above 7,000 for the first time.

“The consensus is for the BSP to cut the SDA rate by another 50 basis points at this week’s meeting to bring down its cost,” said Ricky Cebrero, head of Treasury at Philippine National Bank in Manila. The rate is currently at 2.5 percent.

The peso declined 0.2 percent to 41.127 per dollar as of 10:25 a.m. in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was little changed at 4.72 percent.

The yield on 3.875 percent bond due November 2019 fell eight basis points, or 0.08 percentage point, to 2.73 percent, according to Tradition Financial Services. The rate is at the lowest since the notes were first sold in November.

Bangko Sentral is always ready to intervene to keep the foreign-exchange market orderly, Assistant Governor Cyd Amador told reporters on April 19. The monetary authority may deploy prudential measures more actively to augment traditional monetary policy and prevent asset bubbles from forming, Deputy Governor Nestor Espenilla said separately on April 19.

The central bank announced on April 18 that it’s doubling the amount of dollars residents can freely buy and broadened the range of approved outward investments to spur capital outflows and slow the peso’s gains.

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