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Philippine Bonds Gain After Central Bank Cuts Borrowing Costs

Oct. 25 (Bloomberg) -- Philippine two-year bonds rose for a second day after the central bank cut its benchmark interest rate for a fourth time this year and lowered inflation forecasts. The peso strengthened.

Bangko Sentral ng Pilipinas reduced its overnight borrowing rate by a quarter of a percentage point to a record-low 3.5 percent, a decision predicted by 14 of 21 economists in a Bloomberg survey. The rest expected no change. The central bank will consider the latest growth and price conditions at the Dec. 13 meeting, Deputy Governor Diwa Guinigundo told reporters today.

“Inflation is not an issue while the global economic trend remains uncertain,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. in Manila.

The yield on the 12.25 percent securities due October 2014 fell three basis points, or 0.03 percentage point, to 2.53 percent, the lowest level since Oct. 10, according to closing prices at Philippine Dealing & Exchange Corp.

Inflation is projected to average 3.3 percent this year, 3.9 percent in 2013 and 3.1 percent in 2014, Guinigundo said. That compares with last month’s forecasts of 3.4 percent for 2012, 4.1 percent for next year and 3.3 percent for 2014.

The peso closed 0.4 percent stronger at 41.208 per dollar before the rate decision, based on prices from Tullett Prebon Plc. It has gained 0.4 percent this week. One-month implied volatility, a measure of exchange-rate swings used to price options, fell 15 basis points to 4.85 percent.

Philippine markets are shut for a holiday tomorrow.

To contact the reporter on this story: Clarissa Batino in Manila at

To contact the editor responsible for this story: James Regan at

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