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Philippine Peso Falls as Central Bank Holds Rate at Record Low

The Philippine peso fell for a fourth day as the central bank held its benchmark interest rate at a record low. Government bonds declined.

Policy makers left the overnight rate at 3.5 percent, a decision predicted by all 14 economists in a Bloomberg News survey ahead of announcement after markets closed. The economy, which expanded at the fastest pace in two years last quarter, needs “very little” assistance from monetary policy and that prudential or non-monetary tools may be used to manage inflows, central bank Deputy Governor Diwa Guinigundo said today.

“The market is taking into account potential moves to curb speculative flows and this is helping temper the peso’s gains,” said Rafael Algarra, executive vice president at Security Bank Corp. in Manila.

The peso dropped 0.1 percent to 41.073 per dollar at the close in Manila, the lowest level since Nov. 23, data from Tullett Prebon Plc showed. One-month implied volatility, a gauge of expected exchange-rate moves used to price options, was unchanged at 4.40 percent.

Algarra predicts the peso will advance toward 40.500 per dollar by the end of the first quarter.

“Capital flows is a monetary issue but can be dealt with using non-monetary or macro prudential measures,” Guinigundo told reporters after the policy decision.

The yield on the 10.125 percent notes due December 2015 rose four basis points, or 0.04 percentage point, to 3.89 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp.

“I think a further rate cut is off the table for the meantime, and we’ve heard the central bank talk about other measures to deal with the flows,” Algarra said before the decision.

Foreign investors have bought $111 million more Philippine shares than the sold this month, taking net purchases in 2012 to $2.3 billion, according to stock exchange data.

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