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Philippine Bonds Fall as Central Bank Signals Inflation Risk

March 23 (Bloomberg) -- Philippine bonds fell for a third week after the central bank forecast inflation will accelerate in 2012. The peso strengthened.

Bangko Sentral ng Pilipinas is closely watching prices and the possible second-round effects from energy costs, Governor Amando Tetangco said in a mobile-phone message today, adding that consumer-price gains will probably range from 2.2 percent to 3.1 percent this month. Standard & Poor’s will probably raise the nation’s debt rating from BB, which is two steps below investment grade, sooner rather than later, Finance Secretary Cesar Purisima said at a media briefing today.

“Inflation will not be as abnormally low as it was in February, though it should still be manageable,” said Emilio Neri, a Manila-based economist at Bank of the Philippine Islands. “That adds to the argument that the aggressiveness necessary to counterbalance weakness in Europe and the U.S. is no longer as compelling as it used to be for policy makers.”

Yields on the 5 percent bonds due August 2018 rose 10 basis points, or 0.10 percentage point, this week, to 4.95 percent, prices from Tradition Financial Services showed. The yield fell five basis points today.

Volatility Drops

The peso appreciated 0.2 percent this week and today to 42.963 per dollar at the close, according to Tullett Prebon Plc. One-month implied volatility, which measures exchange-rate swings used to price options, dropped 55 basis points today to 5.75 percent, the lowest level since August.

The credit-rating outlook “should cap any upswing in local bond yields and is peso-positive by extension,” Radhika Rao, an economist at Forecast Pte in Singapore, said in an e-mail.

“Possibilities of second-round effects as a result of higher oil prices, point to possible higher inflation ranges ahead,” Tetangco said today. “We are mindful of how these could reflect in the path of inflation over the policy horizon, the assessment of which will be the principal consideration in setting policy moving forward.”

Bangko Sentral ng Pilipinas reduced the overnight borrowing rate by 50 basis points this year to 4 percent, with the next review due April 19.

--(With assistance from Kyoungwha Kim in Singapore) Editors: Simon Harvey, Anil Varma

To contact the reporters on this story: Clarissa Batino at cbatino@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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