The Philippine peso headed for its third quarterly gain this year as the prospect of a credit-rating upgrade fueled inflows to the nation’s assets. Ten-year government bonds rallied.
Bangko Sentral ng Pilipinas cut its overnight borrowing rate to a record low 3.75 percent in July and the central bank still has “policy space” for further easing this year, Governor Amando Tetangco said on Sept. 24. Favorable borrowing costs and the likelihood of an investment-grade rating supported gains in stocks, Philippine Stock Exchange President Hans Sicat told Bloomberg TV today. Foreign funds pumped $1.3 billion into local shares this quarter, exchange data show.
“There’s nothing to suggest the positive tone will reverse as things are really looking up for the Philippines,” said Radhika Rao, an economist at Forecast Pte in Singapore.
The peso rose 1.1 percent this quarter to 41.71 per dollar at the close in Manila, prices from Tullett Prebon Plc show. The currency strengthened 0.9 percent this month and 0.4 percent today. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 20 basis points, to 5.5 percent today.
The yield on the benchmark 10-year bonds declined 100 basis points, or one percentage point, since June 30 to 4.90 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. That’s the biggest drop since the three months ended September 2010. The rate rose three basis points today.
The local currency has advanced five percent this year, the second-best performance in the region next to the Singapore dollar. Gains slowed from 1.8 percent in the three months through June and 2.2 percent in the first quarter.
Standard & Poor’s raised its foreign-currency debt rating one level to BB+ in July, a step below investment grade. Moody’s Investors Service, which rates the Philippines at Ba2 or two steps below investment mark, raised its outlook to positive in May, citing improving debt levels.
The $225 billion economy expanded 6.1 percent in the first half, the fastest pace since 2010. Inflation this month will probably range from 3.4 percent to 4.3 percent, Tetangco said yesterday. The central bank will review borrowing costs on Oct. 25 and Dec. 13.
“I’m not taking a possible 25-basis-point cut off the table in the fourth quarter,” Rao said.