Philippine Peso Falls, Bonds Gain as SDA Rate Cut Seen This Week

The Philippine peso fell for a second day and 10-year bonds rose on speculation the central bank will cut the interest rate it pays on its special-deposit accounts this week.

Bangko Sentral ng Pilipinas will lower the SDA rate to 2 percent from 2.5 percent at its April 25 meeting after two reductions this year, according to 12 of 19 economists surveyed by Bloomberg. Two predicted a cut to 2.25 percent, while the rest didn’t respond. All 19 forecast that the benchmark overnight borrowing rate would be left at 3.5 percent. Consumer prices rose 3.2 percent in March, compared with 3.4 percent in February, official data show.

“The market is expecting a cut in the SDA rate on Thursday, given the still manageable inflation,” said Malou Liwag, a senior vice president at Philippine National Bank in Manila.

The peso declined 0.2 percent to 41.292 per dollar as of 11:41 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, rose two basis points to 4.69 percent.

The yield on the 4 percent bonds due December 2022 fell 11 basis points, or 0.11 percentage point, to 2.79 percent, according to Tradition Financial Services. That is the lowest rate since the notes were first sold in December.

Bangko Sentral 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 central bank’s Monetary Board, said on April 18.

Outflow Measures

The monetary authority cut the SDA rate in January and March by about half a percentage point each time, while holding its benchmark measure at a record low, as it shifts to an interest-rate corridor approach that Governor Amando Tetangco has said will create greater policy flexibility.

The central bank announced on April 18 that it is doubling the amount of dollars residents can freely buy and broadening the range of approved outward investments to spur capital outflows and slow gains in the peso, which rallied 3.3 percent against the dollar in the past 12 months.

The Bureau of the Treasury will auction 30 billion pesos ($726 million) of three-year bonds at 1 p.m. today in Manila.

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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