July 27 (Bloomberg) -- The Philippine peso advanced, paring a weekly decline, after European Central Bank President Mario Draghi pledged to take steps to preserve the euro. Bonds gained after a surprise interest-rate cut by the central bank.
Draghi suggested yesterday policy makers may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the common currency. The peso had its biggest jump since July 3 even after the Philippine monetary authority lowered borrowing costs yesterday for the third time this year to a record low of 3.75 percent from 4 percent.
“The entire idea that the ECB is going to do something is supportive of risk,” said Radhika Rao, an economist at Forecast Pte in Singapore. Philippine authorities “hope yesterday’s rate cut will slow speculative inflows,” she said.
The peso appreciated 0.5 percent to 41.908 per dollar in Manila, reducing this week’s loss to 0.1 percent, according to Tullett Prebon Plc. One-month implied volatility, a measure of exchange-rate swings used to price options, dropped 25 basis points, or 0.25 percentage point, to 6.25 percent today and increased 65 basis points from last week.
The yield on the government’s 5.875 percent bonds due March 2032 fell four basis points to 5.57 percent today, for a weekly decline of five basis points, according to prices from Tradition Financial Services.
The peso has strengthened 4.5 percent this year, the biggest gainer among Asia’s 11 most-traded currencies, data compiled by Bloomberg show.
Central bank Deputy Governor Diwa Guinigundo said yesterday the interest-rate cut will help slow the currency’s gains.
The decision to reduce borrowing costs is also “a pre-emptive move against the risks associated with the global slowdown,” Governor Amando Tetangco said at a briefing yesterday.
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