Feb. 7 (Bloomberg) -- The Philippine peso strengthened after the Reserve Bank of Australia unexpectedly kept interest rates on hold, signaling it is optimistic the global economy is recovering. Bonds declined.
The currency dropped earlier as data showed Philippine inflation eased to a 13-month low, stoking speculation the central bank will cut interest rates and reduce the country’s yield advantage. The Reserve Bank of Australia left its cash rate target unchanged at 4.25 percent as predicted by three of 27 economists surveyed by Bloomberg. The rest forecast a 25-basis point cut. RBA Governor Glenn Stevens said sentiment in financial markets had “generally improved” since December.
“There was some risk-taking after there was no cut in the RBA rate,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. in Manila.
The peso rose 0.3 percent to close at 42.405 per dollar in Manila, according to Tullett Prebon Plc. The currency fell as much as 0.2 percent earlier.
Philippine consumer prices rose 3.9 percent in January from a year earlier, compared with 4.2 percent in December. Central Bank Governor Amando Tetangco said today slowing inflation means policy makers have “policy space should the need to support growth persist.”
Ten-year government bonds dropped after five days of gains. The yield on the 6.375 percent debt due January 2022 increased seven basis points, or 0.07 percentage point, to 5.20 percent, according to noon fixing prices from the Philippine Dealing & Exchange Corp.
“There was profit-taking by a couple of banks,” Mercado said. “Most banks are still liquid and still looking for yields.”
Bangko Sentral ng Pilipinas lowered the rate it pays lenders for overnight deposits by a quarter of a percentage point to 4.25 percent on Jan. 19. Policy makers next meet on March 1. The Philippine economy grew 3.7 percent in 2011, compared with a revised 7.6 percent expansion a year earlier, official data showed on Jan. 30.
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